Mumbai, November 15, 2018 : .The Indian capital markets are continuing to climb after a strong performance during FY2021. The average daily turnover (ADTO) increased to Rs 27.92 lakh crore in FY2021 from Rs 14.39 lakh crore in FY2020, registering an annual growth of 94 per cent.From Rs 14.39 lakh crore FY2020, the average daily turnover (ADTO), increased to Rs 27.92 crore crore in FY2021.This represents a 94% annual growth.Transaction volumes remain strong in the current fiscal, with the markets clocking an ADTO of Rs 56.36 lakh crore in H1 FY2022.The current fiscal continues to see strong transaction volumes, with an ADTO of Rs 56.36 crore in H1 FY2022.
As per ICRA, the market performance has been supported by favourable liquidity in both domestic and international markets, optimism related to a recovery after the graded reopening of the economy, progress on vaccination rollout and steady retail investor momentum.
According to ICRA, market performance was supported by favourable liquidity both domestically and internationally, optimism related the recovery after the graded opening of the economy, progress in vaccination rollout, and steady retail investor momentum.
Throwing more light, Samriddhi Chowdhary, Vice President & Sector Head – Financial Sector Ratings, ICRA says, “The pool of ICRA-rated bank brokerages reported a strong performance in FY2021 with the estimated average daily turnover (ADTO) increasing 28 per cent Y-o-Y to Rs 1.51 lakh crore from Rs 1.18 lakh crore in FY2020, led by the healthy growth in the retail segment.Samriddhi Chowdhary is the Vice President and Sector Head of Financial Sector Ratings at ICRA.She says that the pool of ICRA-rated brokerages saw a strong performance in FY2021.The average daily turnover (ADTO), increased 28 percent Y-oY to Rs 1.51 crore, compared to Rs 1.18 lakh crore for FY2020.This was due to the healthy growth in retail.
Despite the changes in the margin requirements, the performance remained healthy in Q1 FY2022 with an estimated ADTO of Rs 1.64 lakh crore, driven by favourable retail investor sentiment.Despite changes to margin requirements, performance was stable in Q1 FY2022, with an estimated ADTO at Rs 1.64 lakh crore.This is due to favourable retail investor sentiment.However, the market share of the sample pool of ICRA-rated bank brokerages in terms of transaction volumes declined in FY2021 and moderated further in Q1 FY2022 as they continue to lose share to discount brokers.”.The market share of ICRA-rated bank brokers in terms of transaction volume declined in FY2021, and slowed further in Q1 FY2022 due to continued loss to discount brokers.
Bank-brokerages reported a strong uptick in earnings in FY2021 registering a year-on-year (Y-o-Y) growth of 40 per cent in total revenues and 80 per cent in profit after tax.The bank brokerage companies reported strong earnings growth in FY2021, with a 40% increase in total revenues and a 100% increase in profit after taxes.The cost structure and operational efficiency of the bank brokerage companies also improved over the past few years with focus on the rationalisation of branches coupled with cautious efforts towards the transition to a digital business model, thereby improving the operational efficiency across brokerages.Over the last few years, the cost structure and operational efficiency at bank brokerage firms has improved.
This was due to the focus on rationalisation of branches as well as cautious efforts toward the transition towards a digital business model.This will improve the efficiency across all brokerages.
Bank-brokerages have been increasingly looking at other non-broking sources of income, namely capital market lending business, distribution income and investment banking revenue.The bank-brokers are increasingly looking for other sources of income than brokerage, such as capital market lending, distribution income, and investment banking revenue.
Bank-brokerages have significantly scaled up the margin funding business over the past fiscal, moving in line with the capital market rally, which has resulted in an increase in their borrowing level.The margin funding business has been significantly increased by bank-brokerages in the last fiscal.
This is in line with capital market rallies and has led to an increase in their borrowing levels.
The retail broking segment has witnessed a significant disruption in the last few years due to the growing prominence of discount brokerages.
Retail broking has seen a major disruption over the past few years because of the increasing prominence of discount brokerages.The competitively priced offerings of discount brokers and the no-frill basic accounts and services have resulted in the realignment of the pricing strategy across the industry.
The industry has seen a shift in pricing strategies due to the competitively priced services and accounts of discount brokers.
Adds Chowdhary, “apart from attracting clients from full-service providers, discount brokerage houses have helped expand the market by bringing on board a large number of first-time investors.
Chowdhary says that, in addition to attracting clients from full service providers, discount brokerage houses have helped grow the market by bringing in a large number first-time investors.While the market share for bank brokerages in terms of active clients moderated in FY2021, primarily owing to the faster scaling up of the discount brokerage houses, they reported a strong performance as reflected by the healthy operating metrics and surge in earnings.”.Although the market share of bank brokerages decreased in FY2021, this was mainly due to faster scaling of discount brokerage houses.
However, the brokerages reported strong results as reflected in the positive operating metrics and a surge in earnings.
ICRA expects bank brokerages to continue to build their retail franchise and focus more on technology and digital models for customer acquisition.
ICRA expects bank brokers to grow their retail business and to focus more on technology and digital model for customer acquisition.Supported by these factors, bank brokerages are expected to register a healthy growth in client addition as well as transaction volumes, though their share in total active clients would moderate owing to the rapid expansion of the discount broking model.
These factors will support bank brokerages to experience a healthy growth of client addition and transaction volumes.However, their share in total active customers will decrease due to the rapid expansion in discount broking.
The blended yields are expected to compress going forward, though the focus on fee and fund-based income would support the profitability.Although the blended yields will shrink, the focus on fee- and fund-based income will support profitability.
Adds Chowdhary, “Bank brokerages are expected to continue to enjoy better brand recall, trust, higher credibility and financial flexibility by virtue of being a part of banking groups and would, therefore, remain a prominent part of the industry value chain.Chowdhary says, “Bank brokerages will continue to enjoy better brand recall and trust, higher credibility, and greater financial flexibility because they are part of banking group and would, therefore remain a prominent component of the industry’s value chain.
Bank brokerages are also increasingly looking at the emerging demographic opportunities and new geographical base, which is facilitated through online channels.Online channels allow bank brokerages to take advantage of new demographic opportunities and expand their geographic base.Going forward, the ability of the bank brokers to effectively ramp up their digital initiatives, attract millennial clients and expand to a newer geographical base such as Tier II and Tier III cities would be critical.”.It is crucial that bank brokers are able to efficiently ramp up digital initiatives, attract millennial customers, and expand to newer geographic bases such as Tier II or Tier III cities.
ICRA expects the net operating income (NOI) of bank brokerages to grow 20-25 per cent year-on-year (Y-o-Y) in FY2022 supported by steady broking income along with an uptick in the margin funding and distribution businesses; the ramp-up of other capital markets related businesses could further support the earnings profile.
ICRA projects that the net operating income (NOI), of bank brokerages will grow by 20-25 percent year-on-year (Yo-Y) for FY2022.This is due to steady broking income, an increase in margin funding and distribution business, as well as an increase in margin financing and distribution.
The potential ramp-up in capital markets-related businesses could also support the earnings profile.The net profit for bank brokerages is expected to grow 17-20 per cent during the same period.
The net profit of bank brokerages will increase by 17-20% during this same period.
The borrowings levels of bank brokerages are expected to increase in the current fiscal to support their margin funding business.
To support their margin financing business, bank brokerages will likely increase their borrowings in the current fiscal.The gearing levels of bank brokerages are expected to be in the range of 1.5-2 times in FY2022 at an industry level while the gearing across entities would vary between 1 to 3 times based on the scale of margin funding operations.Bank brokerages’ gearing levels are expected to increase by 1.5-2x in FY2022 at the industry level, while gearing between entities will vary from 1 to 3 depending on the size of margin funding operations.
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