Net profit margins of most large domestic brokerages declined more than 30% in the first quarter of FY12, as participation from retail investors remained subdued, cash volumes on exchanges hovered near historic lows and trading in the low-yield options segment saw a marginal spurt.
Religare Enterprises has made losses of R149 crore this quarter compared with a net loss of R49 crore in the same period last year, with the loss from broking related activities amounting to R110 crore. For the same period, the net profit of Edelweiss Capital, IIFL, Kotak Securities, Motilal Oswal Financial Services, Geojit BNP Paribas and Emkay Global Financial fell by 46%, 37%, 51%, 44%, 31% and 55% respectively.
The average daily market turnover (Adto) of equities during the quarter was R1.33 trillion, down 14% on a q-o-q basis, exchange data shows. The Adto in the F&O Segment was R1.2 trillion during the current quarter, down by 15% q-o-q, while the Adto in the cash segment was R0.14 trillion, down 13% q-o-q and down 20% y-o-y.
Cash volumes increased marginally to 11% of total volumes, up from 10% in the previous quarter but substantially lower than 16% in the same quarter last year. The proportion of delivery to total volumes has gone up marginally from 2.8% in the previous quarter to 3% in the current quarter.
?Retail investors have been staying away from the market for a quite a while now,? lamented Gagan Randev, CEO of Religare Securities.
Brokers are doing everything they can to woo these investors back. ?Brokers are trying to get more clients registered in the hope that the situation will improve in the long run. Products like equity SIPs are seeing a major push,? said Prasanth Prabhakaran, president, retail, IIFL.
According to Santosh Singh, an analyst with Espirito Santo Securities, volumes in the cash segment are expected to improve going forward. ?But whether it will take three, six or nine months for that to happen is debatable,? he said.
High rentals as well as spiralling technology and wage costs are also eating into the profits of brokers. In the past quarter, several brokers reduced their employee strength and cut down on their physical branches. Brokerages also continue to diversify their operations. ?We are consciously building up our business in the currency and commodity space,? added Randev.
Several are expanding their lending book. For instance, the interest income on Edelweiss? financing book now accounts for 59% of the total income, up from 44% in Q1FY11. IIFL, on the other hand, set up 490 gold loan branches in Q1FY12, which resulted in a sequential tripling of gold loans offered.
Experts believe that the industry is ripe for consolidation and going forward only the bigger, full services players or the boutique, niche firms may be able to survive. ?As the environment gets more challenging the stronger players will start acquiring the weaker players,? said Randev.