Domestic brokerage industry revenue growth to moderate in fiscal year 23, says International Public Relations Agency (ICRA)

The rating agency, ICRA, said in a report that revenue growth for the domestic brokerage industry could moderate from about 30 percent in FY22 to 5 percent in FY23.

For the current fiscal year, the industry is expected to post a record revenue of Rs 28,000 crore, which will be about 30 per cent higher than that of FY 21. However, the growth rate will fall to the single digit average in the next fiscal year .

“We expect the markets to remain volatile, going forward, amid a multitude of domestic and international signals. While transaction volumes have been growing month-on-month, primarily led by the derivatives segment, capital markets that have subdued for a prolonged period could have an impact on turnover. The monetary sector and other allied capital markets business, which in turn can impact the industry, said Samriddhi Chowdhary, Vice President – Financial Sector Ratings, ICRA Ratings.

Average daily turnover increased 2.3 times to 63 trillion rupees in the first nine months of FY22 from 28 trillion rupees in FY 21 and jumped more than 4.4 times from 14.4 trillion rupees in FY 2020.

The ICRA said the growth was supported by favorable liquidity in both domestic and international markets, better-than-expected corporate earnings, rebounding economic activity, increased internet penetration, and healthy participation of retail investors.

The 18 brokerages analyzed by the International Public Relations Authority (ICRA) reported a 38 percent growth in revenue in FY21. The rating agency said the cost structure and operational efficiency have also improved over the past few years with a focus on customer acquisition through digital channels. and improve economies of scale.

Many brokerages have expanded their lending business, particularly the Margin Trade Finance Book. This has resulted in increased borrowing levels for the brokerage industry.

The total capital market loan book (comprising margin financing products, loan against securities and employee stock ownership plan financing) of ten prominent retail-oriented brokerages increased by 2.4 times to Rs 11,076 crore as of March 2021 from Rs 4,591 crore as of March 2020, and up to Rs 18,643 crore as of September 2021.

The international public relations agency ICRA said the outlook remained stable for the industry.

Going forward, ICRA anticipates that brokerage operations in the brokerage industry (especially for larger entities with sufficient capacity to raise debt) will increase from current levels. However, the performance of the lending book will remain sensitive to movements in the capital markets.

In recent years, the retail brokerage sector has experienced significant disruption due to the increasing importance of discount brokerage, which has led to a realignment of pricing strategy across the industry.

This has helped in strengthening the investor base for the industry. The total number of demat accounts increased to 80.6 million as of December 2021 from 55.1 million in March 2021 and 40.8 million in March 2020.

The ICRA said that large entities with a strong online brokerage presence were able to increase their market share. It added that the trend towards consolidation is expected to continue as smaller brokerages cede market share to more established brokerage entities.

The rating agency said the brokerages are looking to diversify their revenue sources. However, the core brokerage business will still account for about three-quarters of revenue over the medium term.

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