After a strong performance in FY18, the domestic broking industry is likely to register a moderate 5 per cent income growth in FY19, with the projected aggregate income set to hit Rs 190-200 billion, a report said.
The domestic capital markets reported a robust performance in FY18, building on the healthy performance in financial year 2016-17, supported by the strong equity inflows by the domestic institutional investor (DII) segment, rating agency Icra said in its report today.
"The domestic broking industry is expected to register moderate income growth of 5 per cent, with the projected aggregate income of Rs 190 to 200 billion in FY19," Icra said.
The market volatility is expected continue over the near term, according to Icra, however, the outlook for the domestic capital markets remains stable to positive for FY19 supported by the increasing financialisation of savings and strong DII segment.
"This is after factoring in an elongated period of volatility along with possible correction in valuations over the near term," it said.
The agency expects the retail participation likely to remain stable, supported by the initial public offering (IPO) pipeline, albeit with some fluctuations, given the volatility.
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"The higher yielding cash volumes are expected to get a boost as more brokerage houses scale up the margin trading offering to their clients," it said.
Equity turnover at the exchanges increased to Rs 1,733 trillion in FY18 from Rs 1,004 trillion in FY17, registering a staggering growth of 73 per cent, according to the report.
The average daily turnover (ADTO) increased to Rs 7.04 trillion from Rs 4.05 trillion in the same period.
The markets remained on an upward trajectory till January 2018, however, it witnessed a decline in February 2018, precipitated by the concerns regarding the banking system following the detection of a large-scale fraud in a leading public-sector bank, expectation of US Fed rate hike and rising crude prices. Markets continued to remain volatile in March 2018.
According to Icra, FY18 also witnessed a waning interest by the foreign portfolio investors (FPI) in the domestic capital markets, driven by various domestic and global cues.
"On the contrary, the DII segment remained a net buyer during each month of FY18, registering a net inflow of Rs 1.15 trillion during the year, with volumes nearly quadrupling over the previous fiscal," it said.
A strong DII segment provides stability to the capital markets, reducing the reliance on FPI inflow which remains vulnerable to global cues.
While the FPI segment is expected to remain a market driver over the medium to long term, the increasing prominence of the DII segment is a significant positive development for the Indian capital markets, according to Samriddhi Chowdhary, assistant vice-president, Icra.
"Going forward, a meaningful revival in corporate earnings, with the corporates moving past the structural disruptions like demonetisation and goods and services tax, would be important for providing further fillip to the capital markets and boost FPI equity inflows," he said.