Profit margins of broking houses continued to see a decline in the third quarter of this fiscal owing to low retail participation, volatile equity markets and higher proportion of low-yield options trading. All major broking houses that have come out their results so far have seen a steep decline in net profit this quarter compared with the year-ago period. Profits of Motilal Oswal Financial Services, Edelweiss Financial Services, Geojit BNP Paribas Financial Services and Emkay Global Financial Services fell 38%, 53%, 65% and 80%, respectively.
?The third quarter has been a tough one,? admitted Rashesh Shah, chairman and CEO, Edelweiss Financial Services. He attributed the poor performance of brokerages to the volatile markets, high inflation, interest rates, rupee depreciation, and weak global sentiments. Added CJ George, managing director, Geojit BNP Paribas: ?The decline in delivery volumes has affected our performance. However, we expect the markets to gain significant momentum once the interest rates come down.?
While the low-yield options volume as a percentage of overall market volume on the exchanges remains high at over 60%, proportion of cash volumes, comprising 30% of equity turnover in FY08, declined to a low of 10% this year, according to Motilal Oswal Financial Services report.
Retail participation has not picked up either. ?The lacklustre performance of most issues post-listing dampened retail investors? participation, leading to lower subscriptions since FY10,? stated Motilal Oswal report. Market participants believe it will take another 5-6 months for the primary market to revive.
Increase in algorithmic trading and competition from foreign players have also put pressure on margins. They are diversifying into retail lending, wealth advisory and asset management. These businesses could contribute 50% of the broking houses? profits in 2012-13 , according to Crisil.