The securities analysis industry and brokerages and have benefited from the bull-run. Daily trading volumes have doubled, and retail interest has grown, with over 1 million new demat accounts added every month according to ICRA.
The equity markets clocked an aggregate turnover of Rs 4,222 trillion between April-December 2020, year-on-year (y-o-y) growth of 66 per cent. Average daily turnovers increased to Rs 22.46 trillion, from Rs 13.89 trillion in April-Dec 2019.
Brokerage revenues have grown from an estimated Rs 13,500 crore in 2015-16 to Rs 19,500 crore in 2018-19 and to .....
The securities analysis industry and brokerages
and have benefited from the bull-run. Daily trading volumes have doubled, and retail interest has grown, with over 1 million new demat accounts added every month according to ICRA.
The equity markets
clocked an aggregate turnover of Rs 4,222 trillion between April-December 2020, year-on-year (y-o-y) growth of 66 per cent. Average daily turnovers increased to Rs 22.46 trillion, from Rs 13.89 trillion in April-Dec 2019.
Brokerage revenues have grown from an estimated Rs 13,500 crore in 2015-16 to Rs 19,500 crore in 2018-19 and to around Rs 27,500 crore in 2020-21. There are at least 300 active brokerages, and around 20-25 of these are listed companies.
It’s a highly competitive landscape. The bigger firms are taking more market share. ICRA
estimates the top 10 firms had a 5-year CAGR of 17 per cent in revenues. The top 20 brokerages
together held 84 per cent of overall active client accounts (December 2020). The industry has evolved from transactions-based brokerages
to flat fees and a wider range of products and services. Some brokers have tied up abroad to offer trades on hard-currency assets.
In Q4FY21, a sample of 17 listed brokerages, registered 38 per cent growth in revenues year-on-year to around Rs 4,594 crore from Rs 3,320 crore. These firms saw 135 per cent growth in profit before depreciation, interest and tax (PBDIT) to Rs 2,750 crore from Rs 1,168 crore. Financing costs are significant for this segment. But these were held to Rs 962 crore, which is down YoY from Rs 966 crore. Profits before tax jumped 1300 per cent to Rs 1,705 crore from Rs 122 crore. Net profits for this sample grew an amazing 3500 per cent to Rs 1,333 crore, from Rs 37 crore.
The industry has smoothly managed the transition from an online-offline model to completely online. Aggressive discount brokerages have grabbed market shares, and discount brokerages are likely to continue gaining market share.
The industry is inherently cyclical. If the stock market is up, there are more traders and more volumes per capita. There is a strong, direct correlation between revenues and stock market-index movements, and direct correlations with inflows to the equity segment of the mutual fund industry. There is an inverse correlation with interest rates. All of these variables were in favour, during Q122. Mutual fund equity inflows were up; real interest rates were low; stock market indices were up. So, the industry can be expected to generate growth in Q1FY22.
Despite cyclicality, growth is also likely through the long-term. A low percentage of household savings is invested in financial instruments. In FY21, there was 130 per cent growth in new demat accounts opened. An increase in the smartphone base, and cheap data enables easy mobile trading via apps, which is a driver.
Recent guidelines about tighter regulation of margins, and use of client securities will increase funding requirements for brokers. This could be a reason for revenue growth to moderate and financing costs to rise. Shares across the industry are trading at new record highs, or within 5 per cent of record highs, which are mostly recorded in the last six weeks. It’s a strong momentum trade.
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