After record FY21, brokerages' revenue growth to moderate in FY22: ICRA

'The ongoing investor exuberance is expected to wane gradually. The trading volumes are expected to moderate compared to the peak witnessed in the last few months,' says an ICRA official

The domestic brokerage industry is likely to scale new highs in the current fiscal; however, the revenue growth is expected to moderate in the financial year (FY22), said research and rating agency ICRA in a note on Tuesday.

It said the brokerage industry is estimated to clock a record broking income of Rs 27,500-28,500 crore for the ongoing fiscal, translating into year-on-year (y-o-y) growth of 30-35 per cent.

However, the growth rate is expected to moderate in the following fiscal with gradual moderation in transaction volumes.

ICRA expects the industry the post aggregate income of Rs 29,500-30,500 crore in FY22, y-o-y growth of 7-8 per cent.

"Growing retail share along with increasing interest and other fee income is expected to support profitability," Samriddhi Chowdhary, Vice President & Co-Head - Financial Sector Ratings, ICRA.

The total revenues for a sample of 12 brokerages has increased at a compounded annual growth rate (CAGR) of 17 per cent between FY2016 and FY2020.

Fiscal 2019 was a subdued year for the industry, with contraction in revenues and profitability. Last financial year, the brokerage industry's performance stabilised and accelerated this year.

During the first half of the current fiscal, the sample pool registered an annualised growth of 34 per cent in broking income and 21 per cent in total revenues.

The study further noted that the margin funding book of 10 broking companies showed that the aggregate margin funding halved to Rs 4,600 crore as of March 2020 from its peak level of over Rs 10,600 crore during the fiscal. This was due to the adverse capital environment, especially in the mid-and-small-cap space in the last fiscal.

The margin funding book increased to Rs 6,100 crore as of June 2020, and Rs 7,500 crore as of September 2020. And it is expected to pick up further with brokerage companies actively looking to scale up the margin-funding business to shore up the profitability.

According to the study, large, established entities with a strong presence in online broking have increased their market share in the current environment. Data from the National Stock Exchange (NSE) suggests that the top 20 brokerage houses together accounted for about 84 per cent of overall active client accounts as of December 2020, up from 75 per cent as of March 2020.

Discount brokerage houses have garnered a predominant share of the new accounts supported by their technology-driven business model. The consolidation trend is expected to continue with smaller broking players ceding market share to more established broking entities.

"In the future, the outlook for the brokerage industry is cautiously stable. While the industry is expected to clock a healthy growth on an aggregate basis, the traction witnessed in FY21 is expected to moderate in the next fiscal.  The ongoing investor exuberance is expected to wane gradually. The trading volumes are expected to moderate compared to the peak witnessed in the last few months," said Chowdhary.