Mixed Q3 for brokers, falling cash market volumes hurt

Ashley Coutinho Posted online: Friday, Jan 31, 2014 at 0000 hrs
Mumbai : Listed domestic broking firms reported mixed earnings for the third quarter of FY14 even though the benchmark equity indices gained significantly during the period.

Edelweiss and Geojit BNP Paribas Financial Services saw their net profit for the quarter ended December 2013 rise 25% and 21%, respectively. Rashesh Shah, chairman and CEO, Edelweiss Financial Services, attributed the firm's rise in profits to “its long-term strategy to diversify across businesses, asset classes and client segment and focussing on efficiency and productivity improvement”.

The firm's credit business is doing particularly well. Its retail finance book this quarter grew to R2,025 crore from R1,395 crore in the year-ago period, a growth of 45% y-o-y.

IIFL saw its net profit decline 8% to R67.1 crore from R73.15 crore a year ago. Motilal Oswal (MOFS) saw its profits decline a whopping 88% to Rs 3.5 crore; the firm provided Rs 18.77 crore under the head “exceptional items” this quarter with regard to its pending payment dues with the National Spot Exchange (NSEL).

MOFS said it has an exposure to NSEL of Rs 55.61 crore with respect to the proprietary positions and Rs 1.31 crore with respect to the funded positions. “NSEL has not been able to adhere to its payment obligations over the past few months. Motilal Oswal group has perused legal action against NSEL and others by filing writ petition in Bombay High Court and Criminal complaint in Economic Offences Wing (EOW),” the company wrote in a note in its results filing.

Income from core broking operations continued to remain under pressure. For instance, IIFL’s average daily equities turnover stood at R4,801 crore in Q3FY14, down 20% q-o-q, and 7% y-o-y. MOFS' broking and related revenues stood at R73.8 crore in Q3FY14, marginally up 1% q-o-q, but down 5% y-o-y. The benchmark BSE Sensex gained about 9% during the quarter.

Brokers have been hit hard by dwindling cash market volumes, which used to provide a sizeable portion of their revenues before the global financial crisis hit home in 2008. Daily average cash volumes for Q3 stood at R13,270 crore, less than the average cash volumes of R13,437 crore for CY13. The share of options trading as a percentage of the overall market volumes declined to 75% in the December quarter from 78% in the previous quarter.

“Retail participation within cash volumes showed a slight uptick; however one has to wait and watch to see whether this continues. Market volumes dipped this quarter, largely led by a decline in options volumes; cash and futures volumes also showed moderate declines,” said Motilal Oswal, CMD, MOFS.