Brokerage Industry To See 12% Revenue Growth In FY21 On Retail Investors’ Play In Markets: ICRA Ratings

The domestic brokerage industry's revenue will grow up to 12% in FY21 on the back of heightened retail participation in markets, a report said on Wednesday.

The revenue for the industry, which was reeling under pressure because of factors like penetration of tech-led discount brokerages till recently, has grown 34% in the first five months of the fiscal year, rating agency ICRA said.

The agency said its pool of 11 entities grew their revenue by 3% in FY20, but the revenue growth has been 16% per annum on a compounded basis since FY16, and added that its outlook on the industry is "cautiously stable".

While growth momentum is expected to continue, operational and funding challenges could have a bearing on the performance, particularly for small to mid-sized brokerage companies, it said.

"In the current fiscal, the industry aggregate revenues are expected to increase to Rs 23,000 crore," it said.

"While the economy has been reeling under the pressure of the Covid-19 pandemic and nationwide lockdowns, the trading volumes in the domestic capital markets have been on an upwards trajectory, reaching an all-time high in July 2020," it said.

The option of work from home, coupled with limited investment opportunities given the challenging economic environment and attractive valuations following the correction in March 2020, has helped drive investor interest to capital markets, ICRA's co-head for financial sector ratings Samriddhi Chowdhary said.

She said new account openings in the industry have been frenetic, with the total number of Demat accounts increasing to 4.32 crore as of June 2020 from 4.08 crore in March 2020 and 3.59 crore in March 2019.

Large established entities with strong presence in online broking have increased their market share in the current environment, the agency said, pointing to NSE data which says top 20 brokerage houses together contributed about 77% of the total active clients as of June 2020, up from 75% in March 2020 and 70% in March 2019.

"Discount brokerage houses, however, garnered a predominant share of the new accounts supported by their technology-driven business model," it said, adding that traditional brokerage companies lagged behind in client acquisition.

A shift to a completely online process of client enrolment and onboarding helped support the new account openings, as can be seen by the increase in client additions in the recent months.

The untapped potential for new client additions in the industry, particularly the retail segment, is large, supported by favourable demographic, rising financial literacy and increasing smartphone and internet penetration, it said.

The trend of consolidation is expected to continue with smaller broking players ceding market share to more established broking entities, it added.