As the markets heave a sigh of relief following the announcement of ceasefire between the USA and Iran, Dhiraj Relli, MD and CEO, HDFC Securities believes that it is still early days to predict whether the ceasefire in the West Asia war is permanent or not.
If the ceasefire lasts, there will be less pressure on the oil prices moving forward and the overall impact of the high oil prices being limited to one or two quarters leading to less pressure on inflation and interest rates not moving upward and downward instead. In such a scenario, he expects banking sector and capital market segments of the BFSI sector to do well along with consumer discretionary and consumer staples segments subject to a good monsoon. The industrial sector is also expected to continue its good performance.
Regulatory Headwinds
The recent financial budget also saw an increase in the Securities Transaction Tax (STT) in the F&O segments. While the STT was increased from 0.02% to 0.05% in the futures segment, the rise was from 0.125% to 0.15% in options premium. Relli acknowledged the impact of this move on the derivatives markets and expects a 15-20% reduction in the volumes due to the hike.
A major regulatory change in recent times included Sebi’s true-to-label regulations which removed the volume-based transaction charge rebates. Relli said that this move directly impacted the bottom-line of discount brokerages and reduced their profitability compared to traditional bank-based brokerages. He clarifies that while the move impacted the profitability of the brokerages, it did not impact their volumes as the effect was comparatively minimal. Overall, he believes that the pricing has bottomed out in the brokerage industry and from now on, the brokerage charges will only increase.
Market Revival
In an environment of companies delaying their listing due to the war in West Asia, Relli expects a bounce back in the primary market activity, especially from Q3FY27 onward with some major IPOs lined up for listing during the period.
The correction and volatility in the Indian markets in the last 18 months has seen a tapering in the MTF (Margin Trading Facility) segment. Relli expects this segment to see a revival following the end of the war with more investors using leverage to enter the capital markets and thereby creating an upside for revenue from the point of view of the brokerage houses.
Going forward, he expects investors will understand the need to make more informed decisions and hence, follow research recommendations over social media outlets and influencers.