Brokers see mixed Dec quarter: Volatile market hurt income, say analysts

Growth of active clients has also remained weak. According to the data sourced from the NSE, the number of active clients in 2019-2020 (up to December) stood at 9.58 mn, growing at 9% from FY19.

Brokers have reported a mixed set of revenues in the December quarter, even as the markets saw a strong run-up, with the frontline indices Sensex and Nifty posting 6.7 and 6 per cent gains, respectively, during the period. 

ICICI Securities and Geojit Financial Services saw their broking income shrink 1 per cent on a year-on-year (YoY) basis. "December was not a good month for the markets, which dented investor sentiments. Delivery volumes have remained weak for the broking industry, which has affected the income," said Satish Menon, executive director at Geojit Financial Services.   For the broking industry, the delivery business offers higher yields, but the weakness in such volumes has been a dampener. Motilal Oswal Financial Services reported a 13 per cent spike in broking income in the December quarter on a YoY basis. In sequential terms, it saw 1 per cent uptick in broking income.  

Market volatility is another factor, according to experts. "The markets have witnessed strong volatility in recent months amid sluggish economic growth, a below-expectation Budget, and the coronavirus outbreak," said dealer of a broking house. In December, the average delivery volumes stood at 31.2 per cent. Besides delivery volumes, the cash market witnessed a decline in volumes in recent months. In December, average cash volume stood at Rs 34,457 crore, which was a five-month low.

Experts say weakness in the broader markets has kept investor sentiments and volumes at bay. “Investing in mid- and small-cap stocks has not led to a positive experience. Investors have seen wealth erosion in some stocks because of corporate governance issues,” said Nithin Kamath, chief executive officer at Zerodha. "This has kept retail investors from participating in the markets, who typically enter expecting sharp returns in mid- and small-cap stocks.”  In 2019, the BSE Midcap gave negative returns of 3 per cent; for the BSE Smallcap, negative returns were 7 per cent.

Also, weakness in IPO activity has resulted in lower client activity. “Typically, when large-sized quality IPOs are launched, we see new accounts being opened. However, the IPO pipeline has been weak, which has affected the opening of new accounts," said the chief executive of a broking house. In CY19, IPOs worth Rs 12,361 crore were launched — 60 per cent less than the previous year.

Growth of active clients has also remained weak. According to the data sourced from the NSE, the number of active clients in 2019-2020 (up to December) stood at 9.58 million, growing at 9 per cent from FY19.