The equity markets remained weak during most part of FY16 with a 9% slump from the previous fiscal visible in trading volumes amid slower than anticipated recovery in the domestic economy, continued weak earnings posted by Indian companies and volatility in the global markets, according to a report by domestic credit rating agency, ICRA.
The average daily turnover in the cash market segment declined by 10% to Rs 3.01 lakh crore as compared to FY15. On the other hand currency exchange volumes picked up by 4% in FY16, however, lower than historic highs. The trading volumes in commodity exchanges during FY16 witnessed a growth of 8% significantly lower than the volumes reported prior to the implementation of the Commodity Transaction Tax, the report said.
According Karthik Srinivasan, senior vice-president, ICRA, “Standalone Brokerage revenues and profitability will continue witnessing some pressure in FY17 unless corporate earnings show signs of revival.”
The rating agency estimates that, revenues for the brokerage houses will see a decline of 7-8% in FY16 compared to the previous fiscal on the back of lower volumes and pricing pressures across segments. Further a rise in cost structures as many brokerages resumed hiring and expansion plans following a benign FY2015 is expected to impact overall profitability.
The industry option volumes were also partly exacerbated by the increase in the minimum option contract size since November 2015 and a gradual withdraw liquidity enhancement incentives by exchanges on select products over the course of the year. With sharper decline in the options volumes, the volume share in the overall cash and derivatives market partly changed during FY16, the report said.