PremiumMUMBAI : After a strong run in the previous two fiscals, revenue growth rate for the brokerage industry will taper in FY2023, even as overall performance remains strong, rating agency Icra said on Wednesday.
While the equity markets increased in aggregate volume by 118% year on year in H1 FY2023, high-yielding cash volumes decreased by 8% during the same period, according to the ICRA press release.
Because of the growing prominence of discount brokers, the retail broking segment has seen significant disruption in recent years, it added. The top ten brokers' share of active NSE clients increased from 65% in March 2020 to 76% in November 2022. Larger and more established brokerage firms are expected to gain market share in the future. The trend of consolidation is expected to continue, with smaller brokerage firms ceding market share to larger brokerage firms, the Icra statement said.
"The escalation of geopolitical tensions into war, supply chain disruptions due to pent-up demand, weak listing gains in IPOs, and high crude oil prices have all had an impact on market sentiment; however, some signs of the macroeconomic headwinds easing have been seen in recent months. However, thanks to the significant engagement of domestic investors, Indian markets have continued to outperform the main emerging market indices. The local capital markets are anticipated to continue to be supported by the strengthening fundamentals because India's economic recovery is projected to be less disruptive than the difficulties that key global countries are experiencing due to increasing inflation and tightening financial conditions," the statement said.
According to Subhrajyoti Mohapatra, Senior Analyst - Financial Sector Ratings, ICRA, “The securities broking industry is expected to clock gross operating income of Rs. 37,700-38,700 crore in FY2023, registering a 3-6% growth compared to about 33% growth in FY2022. While the scale-up of the margin trading facility (MTF) has supported the growth in other allied income streams, core broking income is expected to continue to account for the lion’s share of the revenue mix at 60-70% of the gross operating income."
ICRA analysed the performance of 21 brokerage companies accounting for about 60% of the industry’s gross operating income. Supported by industry-wide tailwinds, the ICRA sample of brokerage companies reported a strong growth of 38% in gross operating income in FY2022. Moreover, the aggregate net profits grew by 36% aided by economies of scale. However, with the dampening of investor sentiment on account of adverse macroeconomic developments particularly in Q1 FY2023, the performance moderated in H1 FY2023 with an 8% YoY decline in the net profit. Further, the capital market loan book, primarily comprising margin trade funding and the employee stock option plan (ESOP) funding book, grew a marginal 4% in H1 FY2023 after doubling in the past two years. Rising interest rates also moderated the net interest income and profitability of this segment.
“The retail broking segment witnessed a moderation in fresh investor addition in the current fiscal after witnessing record client additions in the past two fiscals. Furthermore, the industry witnessed a moderation in participation from existing retail investors, which was evident from the marginal decline in the active NSE client base in 8M FY2023, despite over 1.6 crore new demat accounts being opened during the same period," Deep Inder Singh, Vice President & Sector Head - Financial Sector Ratings, ICRA Said.