1. Broking business in full swing as markets pick up & retail returns

Broking business in full swing as markets pick up & retail returns

After reporting a consecutive fall in profit for the last four years, brokerage firms witnessed a turnaround in business performance in the financial year FY15.

By: | Mumbai | Updated: June 23, 2015 12:03 AM

After reporting a consecutive fall in profit for the last four years, brokerage firms witnessed a turnaround in business performance in the financial year FY15. Thanks to a surge in trading activities in the recent past, the aggregate standalone net profit of six listed firms saw a two-fold jump to Rs 400 crore in FY15, its highest level since FY10.

These firms together had reported a profit of Rs 341 crore in FY10.

The benchmark Sensex rallied 25% in FY15, the biggest gain since FY10  as overseas investors bought Indian shares to the tune of $18 billion.  In FY10, the Sensex yielded a return of 81%.

The turnaround results posted by Geojit BNP Paribas Financial Services along with good numbers posted by both Motilal Oswal Financial Services and Edelweiss Financial Services boosted the aggregate profit growth in FY15.

Geojit BNP Paribas reported  a standalone net  profit of Rs 67.5 crore in FY15 against a loss of Rs 77.5 crore in FY14.

The net profit of the remaining two firms grew by 54% and 52% respectively.

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As noted by Sameer Kamath, CFO of Motilal Oswal, cash market volumes for FY15 grew 61% y-o-y  to 21,300 crore, and were only 6% lower than the all-time high seen in FY10.

“This uptick has been largely driven by 73% y-o-y growth of retail. However, retail volumes still continues to be 17% lower than its peak of FY 10 indicating that full retail participation has still not come into the markets” he said in an analyst call post March results.

“The institutional volumes also grew by about 50% y-o-y for FY15 and it happens to be 35% higher than the last peak. So clearly institutions have been very active in the market for the last few years and will continue to grow this year as well” added Kamath.

Edelweiss Financial Services, that managed to maintain strong annual profit growth since FY14 leads the pack with a CAGR of 27% in earnings from broking operations between FY11-FY15. JM Financial and Motilal Oswal followed suit with 10.5% and 7.4% respectively.

Although the derivatives segment provides comparatively lower yield,  futures & options activity is also consistently rising providing the broking firms with another growth opportunity. Between FY10 and FY15, the volume of derivatives on NSE grew over five-fold.

The buoyancy in capital markets also helped the broking sector to  improve their return on equity (RoE). On an aggregate level the return of common shareholders climbed to 7.5% in FY15 against 3.8% clocked last year. Among individual firms, Geojit BNP Paribas posted the highest standalone RoE of 21% for the fiscal 2014-15, followed by Motilal Oswal at 11% and Edelweiss at 8.3%.

On a consolidated basis however, the contribution of broking operation continues to be lower given that post the 2008 financial crisis, broking firms having diversified businesses into areas such as lending, asset management, and investment banking activities.

For instance, equity brokerage and related income of IIFL Holdings stood 12% of revenue in FY15. Whereas revenue contributed by financing and investing activities now contribute 72% from 26% four years ago.

Similarly both asset management and financial activity contributed around 20% each to Motilal Oswal’s total revenue of Rs 775 cr in FY15.

Brokers cash in
* Aggregate standalone net profit of six listed firms saw a 2-fold jump to Rs 400 cr in FY15, its highest level since FY10
* Cash market volume for FY15 grew 61% y-o-y, and was only 6% lower than the all-time high seen in FY10
* Between FY10 and FY15, the volume of derivatives on NSE grew over five-fold

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