Broking stocks slide on Sebi pivot; exchanges, depositories feel the heat

The worst impact is seen on discount brokerages that currently pocket a neat spread between what they charge their end-clients and what they pay the exchanges as charges

Shares of brokerages and market infrastructure institutions (MIIs) witnessed heavy selling pressure following the Securities and Exchange Board of India’s (Sebi’s) pivot to a uniform fee structure, which analysts fear could dent revenues.

Discount brokerages, which currently benefit from a spread between client charges and exchange fees, are expected to be most affected.

Shares of Angel One, the third-largest brokerage by active clients, fell 8.7 per cent.

Groww and Zerodha, the largest brokerages, are not publicly listed.

“The difference between what brokers charge clients and what the exchange charges brokers is a rebate, common in major global markets. This rebate accounts for about 10 per cent of our revenues and up to 50 per cent for other brokers. With the new circular, this revenue stream disappears,” said Nithin Kamath, founder and chief executive officer of Zerodha.

Listed firms like Geojit Financial Services, Share India Securities, and Emkay Global Financial Services saw their shares drop over 5 per cent each.

BSE fell 3.4 per cent, and Central Depository Services declined 2 per cent, despite announcing a one-for-one bonus issue.

Currently, exchanges charge brokers a slab-wise fee structure for both cash and derivatives segments to incentivise higher turnover.

“While exchanges currently levy regressive slab-wise fees (higher the turnover, lower the fees), brokers usually charge their customers at the highest prescribed slab rate, resulting in excess profit residing with brokers, especially discount brokers, which is accounted as ‘ancillary transaction income’. Our analysis of Angel One’s disclosures suggests that this revenue stream contributes about 8 per cent to revenues and a material 20 per cent to pre-tax profits, which is likely to be vulnerable to the Sebi’s mandate that calls for a complete pass-through from customers to MIIs,” said a note by HDFC Securities.

The brokerage has slashed Angel One’s price target by over 20 per cent.

Motilal Oswal’s note said that brokerages would devise ways to offset Sebi’s blow. “Angel One has multiple levers to offset this change: increasing the brokerage rates by Rs 3 per order and levying account opening charges as other brokers do.”

It added that the brokerage might charge Rs 10 for delivery-based trades, currently nil.

Kamath hinted at potential fee increases, noting, “We were one of the last remaining brokers that offered free equity delivery trades. We could do this because futures and options (F&O) trading revenues were subsiding equity delivery investors. With the new circular, we will, in all likelihood, have to let go of the zero brokerage structure and/or increase brokerage for F&O trades. Brokers across the industry will also have to tweak their pricing.”

CDSL announces 1:1 bonus
 

Central Depository Services Limited (CDSL), the only listed depository in the country, on Tuesday said its board has approved a one-for-one bonus issue. The company said the issuance will be subject to shareholder and other regulatory approvals. Shares of CDSL fell 2.1 per cent to end at Rs 2,387. CDSL had come out with an initial public offering in June 2017 where it had priced its shares at Rs 149 apiece.
 

 

Allied Blenders jumps over 13% on debut 
 

Shares of Allied Blenders and Distillers, the maker of Officer’s Choice Whisky, ended with a premium of over 13 per cent against the issue price of Rs 281 on Tuesday. The stock opened the trade at Rs 318.10, up 13.20 per cent from the issue price on the BSE. It later jumped 15.44 per cent to Rs 324.40. Shares of the company ended at Rs 317.85 apiece, rallying 13.11 per cent. On the NSE, shares of the company listed at Rs 320, registering a jump of 13.87 per cent. It ended at Rs 317 per piece, up 12.81 per cent. PTI