Brokerages continue to struggle in range-bound market

Falling cash market volumes amid a range-bound market once again took a toll on the sales and profits of broking firms. The results of three prominent brokerages that have reported their results for the June quarter show they continue to grapple with sluggish growth in revenues.

Even though Edelweiss Capital’s consolidated revenues grew 44 per cent to Rs 533 crore, its fee income, which is income from broking, investment banking and other equity-related businesses, went up just four per cent to Rs 71 crore year-on-year. Motilal Oswal Financial Services (MOFS) recorded two per cent drop in total revenues at Rs 109 crore, but its broking revenues fell 10 per cent to Rs 69.3 crore. Kochi-based Geojit BNP Paribas, too, saw its top line decline five per cent to Rs 59 crore during the June quarter.

A sharp drop in the cash market turnover during the April-June period due to falling retail participation amid muted market performance hurt revenues of broking firms.
 

ROUGH RIDE Broking firms continued to struggle in Q1FY13
In Rs crore	Net sales	YoY chg (%)	Net profit	YoY chg (%)
Edelweiss	533	44	40	20
Motilal Oswal	109	-2	20.2	-4
Geojit BNP	59	-5	9.8	81
Note: Results for the first quarter ended June 2012

The average daily cash market volumes on both the stock exchanges during the June quarter was down 26 per cent sequentially and 16 per cent y-o-y to Rs 11,800 crore. Further, the share of low-yielding options rose to 75 per cent of the total market volume during the quarter from about 70 per cent in the previous quarter. The BSE benchmark Sensex during the April-June period remained almost flat.

The blended yield for most broking firms during the June quarter slipped below five basis points (bps). Which means for a trade of Rs 100, a broking firm pockets just five paise. Yields were more than 10 bps about three years ago. Healthy secondary market volumes, especially in the cash segment, is critical for revenue growth of brokerages.

“The Indian capital market faced yet another challenging quarter. High-yield cash dipped within market volumes, while low-yield options surged further,” said Motilal Oswal, chairman and managing director at MOFS, while announcing the June quarter numbers.

“The market sentiment and activity levels in the first quarter continued to be impacted by the macro level headwinds. Persistent high inflation and uncertain monsoon have clouded the outlook in the near term,” said Rashesh Shah, chairman and chief executive officer at Edelweiss Financial Services after its results. “We expect the headwinds to persist in the first half of the current year and see growth returning gradually thereafter,” he added.

Analysts believe the environment will continue to remain challenging for brokerages till the time there is buoyancy in the market and volumes improve significantly. Going forward, analysts say, broking firms will generate more revenues from other streams of businesses like retail lending and insurance distribution.