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The surge in the stock market and trading activity has boosted the earnings of financial services firms with a significant presence in the broking business, during the quarter ended June.
Net profit for these firms has risen between 40 per cent and 74 per cent during the April-June period, with company officials terming it the best quarter for the broking business in seven-eight years.
The boost in brokerage revenue has been on the back of a revival in trading activity, led by retail investors. Average volumes in the cash segment, where retail and HNIs are the main participants, has gone up about 72 per cent in the June quarter to Rs 4.49 lakh crore from Rs 2.61 lakh crore in June last year. Brokerages enjoy healthy spreads on trading business from retail investors. Retail investors had largely stayed away from equities after the 2008 economic downturn as the sentiment had turned sour.
"The June quarter has been by far the best quarter in the last 30 as retail volumes have been picking up. The fear factor is out of the markets and there is more conviction among investors to put money into equities," said Sameer Kamath, chief financial officer, Motilal Oswal Financial Services. The Mumbai-based firm has posted a net profit of Rs 32.09 crore, up 74 per cent from the corresponding quarter in the last fiscal.
The June quarter has seen a 14 per cent rise in the benchmark indices - BSE Sensex and NSE Nifty.
The same goes for peer group firm Edelweiss Financial Services, which has seen its net profit move up by 41 per cent to Rs 78.3 crore. While the growth driver for Edelweiss Financial Services has been the rise in its credit business, the broking business, on its own, has also seen an increase of about 1 per cent. The brokerage business now accounts for about 7.4 per cent of total revenue, according to the company's financial statement.
Similarly, IIFL Holdings posted a net profit growth of 50 per cent to Rs 97.38 crore. IIFL broking accounts for nearly 11 per cent of its total income, which has gone up 17 per cent to Rs 789 crore.
"After a long time, the brokerage has started doing well and has started contributing significantly to the revenue growth," said R Venkataraman, managing director, IIFL Group.
Geojit BNP Paribas Financial Services, which continues to remain a pure brokerage play has seen its net profit rise by about 43 per cent to Rs 23.5 crore in June 2014. Broking business accounts for about 75 per cent of the total business.
"While not many new retail customers have come into the market, the good news is that existing investors have increased their activity," said Satish Menon, executive director of Geojit BNP Paribas.
Industry officials say the cost of acquiring new clients is also much lower this time because of existing technology. "This time new customers have come in mainly through the online platform. Nearly 48 per cent of our volumes now come through the internet," said Menon.
