Domestic broking to see moderate income growth in FY19, says Icra

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Mumbai | Published: April 11, 2018 3:08:45 AM

The domestic broking industry is expected to register moderate income growth in FY2019, with a projected aggregate income of Rs 19,000 crore to Rs 20,000 crore after a strong performance in the previous fiscal, a note by Icra said.

icra, domestic, broking, income growthThe note said higher yielding cash volumes are expected to get a boost as more brokerage houses scale up the margin trading offering to their clients.

The domestic broking industry is expected to register moderate income growth in FY2019, with a projected aggregate income of Rs 19,000 crore to Rs 20,000 crore after a strong performance in the previous fiscal, a note by Icra said.
The note said this is after factoring in an elongated period of volatility along with the possible correction in valuations over the near term.

Further, the note said the retail participation is likely to remain stable, supported by the initial public offering (IPO) pipeline, with some fluctuations, given the volatility.

The note said higher yielding cash volumes are expected to get a boost as more brokerage houses scale up the margin trading offering to their clients. This would also help support the income profile of full-service brokerage houses, given the price-based competition from the discount brokerage houses, the report said.

The note said domestic capital markets reported a robust performance in FY18, building on the healthy return in FY17, supported by the strong inflows by the local institutional investor segment. Equity turnover at the exchanges increased to Rs 1,733 lakh crore in FY18 from Rs 1,004 lakh crore in FY17, a growth of 73%. The Average Daily Turnover (ADTO) rose to Rs 7.04 lakh crore from Rs 4.05 lakh crore in the same period.

The stocks of domestic brokerages rallied on the back of strong performance by brokerages. In FY 18 the stock of Emkay Global rose by 84%, Motilal Oswal by 38%, Edelweiss by 51.2% and Geojit by 53.8%.

“While the FPI segment is expected to remain a market driver over the medium to long term, the increasing prominence of the DII segment is a significant positive development for the Indian capital markets,” said Samriddhi Chowdhary, assistant vice president and co-head – financial sector ratings, Icra. The note said IPO issuances flow remained strong in FY18, supported by favourable capital markets and the investors’ appetite for IPOs. However, the participation of the high net-worth individual (HNI) investor segment in IPOs tapered in FY2018 with investors adopting a more cautious approach towards such issuances.

The note said this was in stark contrast to FY2017, which witnessed a surge in HNI investor interest in IPOs to capitalise on the listing gains. Despite the moderation in HNI participation, the IPO financing market has remained strong, supported by the sheer increase in the number of issuances. The note said the IPO issuance flow is expected to remain healthy considering the strong pipeline for FY2019.

The HNI portion of some of the recent issues like Lemon Tree Hotels, ICICI Securities, MIDHANI, and HAL was undersubscribed.

The note said though the market volatility is expected continue over the near term, the outlook for the domestic capital markets remains stable to positive for FY2019 because of increasing financialisation of savings and strong DII segment.
“However, markets and investor sentiment would remain susceptible to events like the outcome of impending state elections, aggravation of geopolitical tensions, an uptick in crude prices and hike in rates by US Fed amongst others, which could have a bearing on FPI inflow,” the note said.

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