ICRA projects muted growth for brokerage industry in near term

Investment information firm ICRA estimates the brokerage industry revenue growth rate to remain muted at two to five per cent compared to year-on-year growth of three per cent in FY19 and 30 per cent in FY18.

It has estimated revenue projection of Rs 19,900 crore to 20,500 crore for the current financial year FY20. The outlook for industry remains stable to negative over the near term, said ICRA.

While the performance of the benchmark indices would continue to remain steady, improvement in small and mid-cap segments is expected to remain limited over the near term.

"This in turn will have a bearing on the product and investor profile in the industry. The volatility in the markets is expected to encourage trading turnover," said ICRA.

However, the recent corrections in valuations coupled with the cautious investor stance will have a bearing on industry turnover and product mix, it added.

ICRA said given the expected volatility in the markets and concerns regarding economic outlook, retail investor participation is expected to remain tepid.

However, considering that the large untapped market in this segment will help cushion the impact to some extent, the long-term potential remains healthy.

In addition to the pricing pressures and contracting yields, the enhanced monitoring and reporting requirement will also require investment and upgradation of processes, systems and infrastructure and thus will also result in pressure on profitability levels of broking entities.

The increase in interest income through margin funding (provided the credit cost remain under check) and distribution of financial products will help offset the impact on profitability to some extent.

"Over the medium term some consolidation is expected in the industry which will help support profitability levels," said ICRA.

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