Brokerages under pressure as COVID-19 impact on markets hits distribution income

Brokerages are buckling up to face income distribution pressure as economic slowdown and the coronavirus pandemic drag equity scheme inflows. The situation has eroded asset values, leading to market corrections.

April, which was the first full month since lockdown, saw equity inflows fall by 47 percent to Rs 6,212 crore – as a result of the lockdown and COVID-19, Business Standard reported.

Jimeet Modi, CEO – Samco Securities said as per the report that equity and linked products account for a big part of distribution income and correction in asset prices would impact this inflow.

“We are advising clients to make lump sum investments and systematic investment plans (SIPs) in equity products, as current valuations offer attractive entry points,” he added.

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Lockdown has made it difficult to sell mutual fund (MF) products and there is a slowdown in equity scheme streams too, another brokerage executive said as per the report, adding that “so far steady” brokerage incomes have kept the boat afloat.

Meanwhile fresh inflows have deteriorated, while redemptions from existing retail investors have increased due to market fluctuations and “credit events”, Motilal Oswal Financial Services noted.

“These redemptions, coupled with lower net asset values (NAVs), would be a double whammy for ICICI Securities … in the near term, earnings growth would be driven by cost control rather than by revenue growth,” they added. ICICI Securities is India’s largest non-bank MF distributor after NJ India Invest.

However, while MF investors have shied away due to turbulent markets, volume of direct equity investments have increased as investors rush to gain from low stock prices. On the NSE, April volumes crossed Rs 50,000 crore – an all-time high. This may buoy brokerage houses a bit.

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