Declining trade volumes hurting brokers

Broking revenues have dipped 8% in FY16, says Icra

Dwindling volumes in the cash segment have made a dent into broking revenues, says ratings agency ICRA.

Broking revenues, it says, dipped eight per cent on the back of a 10 per cent decline in trading volumes in 2015-16. Revenues had grown 14 per cent the preceding year.

It also predicts the growth will remain tepid this financial year. "Standalone brokerage revenues and profitability to continue witnessing some pressure in 2016-17, unless corporate earnings show signs of revival,” said Karthik Srinivasan, senior-vice president. According to Icra, average daily volumes in the equities segment fell 10 per cent to Rs 3.1 lakh crore in 2015-16.

“The majority of business shifted to the derivative market where the yield is comparatively low. Beside, the industry is witnessing constant decline and stagnation in the cash segment. There is a surge of discount brokerages, which have also significantly impacted the business,” said Deven Choksey, managing director of KR Choksey Shares and Securities.

The BSE exchange's benchmark Sensex had fallen 10 per cent in FY16, amid sharp volatility in the global markets. “Softening of the market can be largely attributed to slower than anticipated recovery in the domestic economy, continued weak earnings profile and volatility in the global markets,” said ICRA.

Large brokerages are also feeling the heat of the tough business environment. Leading entities have reported weakness in their broking business in the March quarter.

Alok Churiwala, vice-chairman of the BSE Brokers Forum, says broking has become a “high-cost and low-margin business”. The broker count declined to 3,187 in November 2015 from 6,147 in March 2015.  The sub-broker count fell to 36,848 from 42,351 during this period.

ICRA says there has been a slight uptick in commodity volumes. However, that has failed to boost the business due to the commodity transaction tax. On the currency exchanges, too, while the volumes picked up by four per cent in FY16, this was still much lower than their historic high. The latter rise could be partly due to the removal of trading curbs.