Profit margins of listed brokerage firms have shrunk considerably in the last quarter as cash volumes on exchanges have touched historic lows, retail participants have stayed away and action in the low-yield options segment has seen a spurt.
Geojit BNP Paribas? net profit for the quarter ended March 2011 declined 61% compared with the year-ago period. Earnings of ICICI Securities and Kotak Securities declined 29% while that of Motilal Oswal retreated more than 50% for the same period. Annual results have been dismal as well. Net profit for Geojit BNP Paribas, Kotak Securities, Motilal Oswal and IIFL declined 38%, 30%, 19% and 9%, respectively. Edelweiss Capital posted a modest 1.7% rise in net profit for the full year even though its quarterly profit declined 17%.
?Despite an increase in market share in the retail segment, an overall decline in retail market volumes coupled with the loss in our joint venture has led to a decline in profits,? said CJ George, managing director, Geojit BNP Paribas Financial Services. During the fourth quarter, the firm?s joint venture with BNP Paribas for institutional broking reported a loss of R4.6 crore.
According to a report by ICICI Securities, the contribution of cash segment to total Average Daily Turnover has been consistently declining and is now down to a historic low of 10% for the quarter ended March 2011. On the other hand, options turnover as a percentage of the overall market turnover has risen steadily in the past three quarters from 53.4% to 64.2%.
?Our bottom line was under pressure due to higher interest cost and the fall in broking yield,? said Nirmal Jain, chairman, IIFL. Added Rashesh Shah, chairman and CEO, Edelweiss Group: ?The industry revenue has not grown in the past three years and new client addition has been slow on both the institutional and retail side.?
The results would have been more dismal had most of these brokerages not been well-diversified. Broking incomes at top brokerages have shrunk in the past few years, with a shift in focus to fee-based businesses. The diversification strategy is likely to continue as most players look to become full-fledged financial services players. ?We remain optimistic about the long term prospects of the industry and will continue to broad-base our revenue streams,? said Jain.