The brokerage industry in India is expected to post a record performance in the current fiscal on the back of healthy participation of retail investors and favourable systemic liquidity, rating agency ICRA Ratings said in a recent note. The industry is likely to register total revenue in the range of ₹27,000-28,000 crore in FY22, marking a growth of 28-33% on annual basis, the note stated. In this backdrop, the outlook for the brokerage industry is stable, the agency noted.

The revenue growth is, however, likely to come down to 5-7% in the next financial year, with a total industry turnover of ₹28,500-29,000 crore. Growth will continue to remain contingent on capital market performance and maintenance of similar yields as seen in recent years, the note said.

While broking entities have been trying to diversify their portfolio offerings, with focus shifting to other services and businesses, the core broking business is expected to account for 70-75% of the total revenues over the near to medium term, ICRA said.

“The domestic capital markets reported a steady increase in transaction volumes in the current fiscal after a strong performance in FY2021. The average daily turnover increased by 126% to ₹63.07 lakh crore in 9M FY2022 from ₹27.92 lakh crore in FY21 (₹14.39 lakh crore in FY20). The market performance was supported by favourable liquidity in both domestic and international markets, better-than-expected corporate earnings, pick-up in economic activity, rising internet penetration and healthy participation of retail investors,” stated Samriddhi Chowdhary, vice president – financial sector ratings, ICRA Ratings.

The market rally began from the last fiscal in April 2020 with large cap indices, and became broad based with small and mid cap joining the party during the first nine months. “The benchmark indices registered a healthy 73-76% growth during April 2020 to December 2021, though the small and mid-cap indices outperformed with a growth of 124-172% after reporting a sluggish performance in FY18 and FY19,” the ICRA note read.

The market, however, underwent a correction in the current quarter, with benchmark indices falling behind their mid-January peak by approximately 10% due to various reasons.

“We expect the markets to remain volatile, going forward, amid various domestic and international cues. While the transaction volumes have reported a month-on-month growth, primarily led by the derivatives segment during the quarter, prolonged subdued capital markets could have a bearing on the cash segment turnover and other allied capital market businesses, which, in turn, could impact the industry’s earnings,” Chowdhary said.

The report is based on performance analysis encompassing 18 brokerage companies, which registered a 38% year-on-year increase in total revenues. These entities also saw their cost structure and operational efficiency improve over the past few years with focus on customer acquisition through digital channels and improvement in economies of scale.

Discount brokerages have managed to induce significant disruption over the last few years in the retail broking segment. The competitively priced offerings of discount brokers and the no-frills basic accounts and services have resulted in the realignment of the pricing strategy across the industry.

New account openings reflect the rise in the number of retail investors in capital markets. The total number of demat accounts increased to 8.06 crore as of December 2021 from 5.51 crore in March 2021. This translates into a net addition of 28.33 lakh accounts per month in the current fiscal, more than twice the monthly addition of 11.91 lakh in FY2021. The share of younger age groups is also increasing.

An analysis of 10 prominent retail-oriented broking companies shows the aggregate capital market loan book increased by 141% to ₹11,076 crore as of March 2021, from ₹4,591 crore as of March 2020, and further to ₹18,643 crore as of September 2021, marking a growth of 68%.

In future, the performance of the lending book would remain sensitive to capital market movements, ICRA said.

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