Headwinds Set to Intensify
Karwa said Emkay derives about 75% of its consolidated revenue from equity broking and the rest from NBFC, investment banking and portfolio advisory businesses.
“It is a question of time before we find that our equity broking revenues would become 50% of our overall revenues. In 2007, it stood at 85-90%,” Karwa said.
Increased trading in options, which is a low-margin business, along with direct market access (DMA) — a facility that allows funds to often execute trades on their own instead of going through brokers — have also impacted the broking business.
Being a cyclical industry, the industry has had its share of ups and downs but as diversified businesses grow and technology becomes more dominant in terms of mobile trading, broking-related revenues are likely to shrink.
In this scenario, brokerages that adapt to expectations of customers and go-digital should do fine, said Nitin Jain, CEO of Edelweiss Financial Services’ Global Asset and Wealth Management. For Edelweiss, broking revenue forms about 5-6% of the total revenue, down from 35-40% in 2007, Jain added. Jain does not expect a significant shift in broking revenue in the next few years.
“About 15% of our overall revenue comes from mobile platform and it has been growing steadily. I will not be surprised if it grows to 25% of the consolidated revenue in one year,” Jain said.
Jain is optimistic on Edelweiss’ credit busin e s s , whi c h contributes around 50% of its revenues. “We expect our credit business to continue growing at 18-20% over the next 3-4 years,” Jain said. Motilal Oswal, chairman of Motilal Oswal Financial Services, expects the company’s broking revenue share to remain at the same level for the next few years.
As diversified businesses grow and technology becomes more dominant, broking-related revenues are likely to shrink