Broking incomes rise as investor interest grows in direct equity investing

Opening of new client accounts has seen a sharp jump in recent months

Broking incomes are showing signs of a pick-up with a rise in retail investors’ appetite for direct equity investing and broking houses seeing a bump up in new client accounts.

“New client accounts over recent months have moved up significantly, and activation in existing client accounts has also picked up,” said Arindam Chanda, chief executive officer at IIFL Securities.

In June quarter (Q1) of 2020-2021 (FY21), IIFL Securities saw 28 per cent jump on a year-on-year (YoY) basis in retail broking revenue, at Rs 66 crore. The institutional broking revenues were up 19 per cent to Rs 25.7 crore.

For Q1, IIFL Securities’ customer acquisition stood at 75,900, which was 55 per cent higher than the previous quarter. ICICI Securities, among the country’s largest broking houses in terms of active clients, reported a 61.8 per cent jump in brokerage income at Rs 355.7 crore in Q1.

Experts say the sharp run-up in markets since March has revived retail participation. “With the Covid-19 pandemic forcing people into their homes, they are looking at generating some income through stock market investment. The recent run-up in markets has led retail investors to believed that they can make quick gains,” said G Chokkalingam, founder and managing director of Equinomics Research and Advisory.

 

 

Among discount brokers, 5Paisa Capital reported first quarterly profit with profit before tax of Rs 3.7 crore in Q1.

Market experts say that while several investors have been quick to enter markets amid the run-up, it would be interesting to see how these investors behave if market volatility intensifies again.

Broking houses ended the previous financial year with tepid growth in incomes, but a sustained rally can lead to a reversal of fortunes. Till March 23, the BSE Sensex was down 37 per cent amid concerns over the spread of Covid-19. Since then, the 30-share Sensex has bounced back with gains of over 46 per cent.

Analysts say a shift in investor sentiments can again put broking incomes under pressure. “The key risk to our positive view would arise from weaknesses in capital markets that can impact investor participation, higher-than-expected price competition in broking, and adverse changes in regulations such as tightening of norms on commissions,” CLSA said in a client note.

While competition from discount brokerages has led to a cut in charges, brokerages are looking to offset this through annuity-like models.