Broking industry in bitter-sweet spot with yields sliding, revenues rising

The broking industry is in a bitter-sweet spot with yields sliding but revenues managing to grow. The decline in yields for the industry is because of the advent of discount brokerages, which typically charge a flat fee of as low as Rs 10 per transaction.

Revenues, on the other hand, have gone up as the trading volumes have surged, partly because of the new fee structure and more due to the buoyancy in the market. A look at ICICI Securities blended yield and revenue for the broking business since 2014-15 throws a good light on this trend. India’s largest listed brokerage has seen its yield come of from 4.65 per cent in FY15 to an estimated 0.6 per cent for the ongoing fiscal.

Revenues during the same period have grown from Rs 760 crore to an estimated Rs 1,330 crore for this financial year. A note by IIFL says yields for the industry will compress further over the next two years. However, this will be largely offset by increasing revenues.

“The industry is likely to witness strong growth going forward, despite difficulties, including pressure on yields and changes in regulations. Growth will likely be on account of higher reach of players into untapped markets and leveraging digital models. This would be supported by a 23-25 per cent annualised growth in equity turnover over FY20-25, owing to higher investor awareness and retail interest across segments, coupled with easier access to markets,” it says.