Brokerages’ income sees tepid growth in FY20

Heightened market volatility, combined with lower deliverybased volumes have weighed on broking incomes as large and mid-sized players reported flat to negative growth in 20192020 (FY20).

“The industry has been seeing fall in broking yields as delivery-based volumes are still on the lower side. At the same time, brokerages have remained thin amid heightened competitive intensity,” said a senior executive of a brokerage. In FY20, the market benchmark Sensex corrected over 22 per cent over concerns of global and domestic slowdown.

For ICICI Securities, which is among the largest players, broking related income grew 1.57 per cent in FY20. IIFL Securities saw 14 per cent income from capital market activity, and for Geojit Financial Services, broking income was 1.6 per cent lower in FY20, than the previous year.

However, delivery-based volumes are yet to recover, they remained a third of overall cash market activity in April. The delivery segment is typically the highest-yielding business for brokers.

Even as competitive intensity from discount brokerages has led to a cut in brokerage charges, existing players are looking to offset this through annuity-like models.

For instance, ICICI Securities recently came up with ‘prime’ plans to create stickier business models and offer clients new products and services. IIFL Securities is also planning to market such plans.

On FY20 performance, R Venkataraman, co-promoter

and managing director at IIFL Securities, said at a recent earnings call, “The major reason for the fall of revenues is because of a decline in retail broking revenues, which was down almost 11 per cent yearon-year.”

However, income from investment banking remained unchanged, and institutional broking revenues improved by 23 per cent to ~160 crore in FY20. For Motilal Oswal Financial Services (MOFSL), broking-related income was up eight per cent in FY20, compared to a year ago.

Consolidation in the industry has given larger players better earnings visibility, despite the challenging environment. “Our traditional broking business continues to be a cash cow and has benefited from industry consolidation,” said Motilal Oswal, managing director and chief

executive officer at MOFSL, on a Q4 earnings call. Strong client addition also helped the firm. The company acquired over 242,000 clients, 72 per cent higher than the previous year.

New client accounts started to pick up towards the end of quarter, as markets saw deep correction in March.

“There were a lot of investors who were sitting on the sidelines. After seeing multiyear correction in the market in March, they have jumped into the market,” said Vijay Chandok, managing director and chief executive officer at ICICI Securities, during the company’s recent earnings call.

“New client account over last couple of months has moved up three times, and activation in existing client accounts has also picked up,” said Arindam Chanda, chief executive officer at IIFL Securities.