The brokerage industry is expected to clock a record broking income of Rs 27,500-28,500 crore in FY21, a jump of 30-35 per cent compared to Rs 21,000 crore in FY20. The record growth comes on the back of a spurt in retail participation post COVID-19 crash in March 2020 and a resultant pick-up in transaction volumes.
The ICRA sample pool of 12 brokerage companies registered an annualised growth of 34 per cent in broking income and 21 per cent in total revenues in H1 FY2021.
The FY22 outlook for the brokerage industry, however, is "cautiously stable". "The industry growth rate is expected to moderate in FY22 with gradual moderation in transaction volumes. Consequently, ICRA expects industry aggregate broking income of Rs 29,500-30,500 crore (Y-o-Y growth of 7-8 per cent), in FY2022," says Samriddhi Chowdhary, Vice President & Co-head - Financial Sector Ratings, ICRA.
The rating agency notes that many brokerage houses have ventured into other businesses like consumer funding, mortgage lending, commercial real estate lending, etc. "For the purpose of this analysis, the focus has been on capital market performance which continues to dominate the revenue profile."
Discount brokers gain market share
Large brokerages with strong presence in online broking have increased their market share in the current environment, states ICRA. "As per information from the National Stock Exchange (NSE), the top 20 brokerage houses together accounted for about 84 per cent of overall active client accounts as of December 2020, up from 75 per cent as of March 2020 (57 per cent as of March 2019). Discount brokerage houses, however, have been able to garner a predominant share of the new accounts supported by their technology-driven business model. In contrast, some of the traditional brokerage companies had a slow start to the year in terms of new client additions."
With a strong push to the digital onboarding of customers, new client additions in the industry are expected to remain healthy supported by the large untapped market in the retail segment, coupled with favourable demographics, rising financial literacy and increasing smartphone/internet penetration.
"The trend of consolidation is expected to continue with smaller broking players ceding market share to more established broking entities," says ICRA.
Other key highlights:
- As per ICRA Research, the market traction has been supported by strong foreign portfolio investor (FPI) investment inflows, optimism related to a recovery after the graded reopening of the economy, and steady retail investor momentum.
- Steady increase in trading activity with trading volumes peak in December 2020; aggregate turnover up 66 per cent in 9M FY2021.
- Significant increase in retail participation; as per SEBI, the total number of demat accounts increased to 498 lakh as of December 2020 compared to 408 lakh in March 2020.