Brokerages to witness muted revenue growth in FY22: Crisil

After witnessing record number of active client additions and average daily turnover (ADTO) in a pandemic-marred fiscal, brokerages will continue to see positive revenue growth in fiscal 2022. However, the growth will be muted, said Crisil Ratings.

Crisil estimated that the broking revenue would have grown by close to 65-70% in FY21, against 7% in FY2020. However, market volatility and phased implementation of new margin regulations may act as a drag on incremental volume growth, resulting in marginal revenue growth in fiscal 2022. In fact, the slowdown can already be witnessed in recent numbers.

The broking revenue de-grew by 1% to 8% in the third quarter of FY21 on a sequential basis, said Crisil. This indicates that client additions are not translating into higher broking revenues of late. Krishnan Sitaraman, senior director, Crisil Ratings, said, ‘‘Performance in the December quarter shows signs of fatigue creeping in, with most broking entities registering on-quarter de-growth in revenue, despite continued record client additions. This is in contrast with nearly 18% sequential growth in the September quarter.” He explained that with equity markets turning volatile since January 2021 and revised regulations with higher margin requirements kicking in, sustainability of trading volumes in fiscal 2022 may be a challenge, thereby impacting revenue.

In the first nine months of FY21, brokerage houses across the industry added nearly 52 lakh clients which is equivalent to the total new clients added in the preceding five years. This took the active client base to 1.6 crore as of December 2020.

Additionally, relatively low interest yield on savings and deposits, ample time availability during the lockdown and Pygmalion-esque effect linked to broad-based high returns in equities since March 2020 also contributed to the rise in demat accounts.

Interestingly, discount brokers grabbed a significant market share of active clients, but they still lag bank-led brokers in terms of revenue market share. Crisil predicted that the average revenue per user for bank-led brokerages was Rs 10,000 to Rs 12,000 during the first half of FY21, while that for discount brokers was Rs 4,000 to Rs 8,000.