After stellar growth in financial year 2017-18, the broking industry is expected to register only moderate income growth in the current financial year, according to ICRA. This is due to an “elongated period of volatility, along with possible correction in valuations over the near term,” said ICRA in a report.

Equity turnover at the exchanges increased to ₹1,733 lakh crore in FY 2018 from ₹1,004 lakh crore in FY 2017, registering a staggering growth of 73 per cent. The average daily turnover increased to ₹704 lakh crore (₹405 lakh crore).

However, the rating agency expects that in FY 2019, income will grow by around 5 per cent with projected aggregate income of ₹19,000-20,000 crore.

Stable retail participation

“The retail participation is likely to remain stable, supported by the initial public offering (IPO) pipeline, albeit with some fluctuations, given the volatility,” ICRA further stated.

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

According to ICRA, the domestic capital markets reported a robust performance in FY2018, building on the healthy performance in FY 2017, supported by strong equity inflows from the domestic institutional investor (DII) segment.

The markets, which were on an upward trajectory till January 2018, had witnessed a decline in February 2018, precipitated by the concerns regarding the banking system following detection of a large-scale fraud in a leading public sector bank, expectation of US Fed rate hike and rising crude prices.

“FY2018 also witnessed waning interest by foreign portfolio investors (FPI) in the domestic capital markets, driven by various domestic and global cues,” said Samriddhi Chowdhary, Assistant Vice-President and Co-Head - Financial Sector Ratings, ICRA.

Domestic funds throng

On the contrary, the DII segment remained a net buyer during each month of FY 2018, registering net inflow of ₹1.15 lakh crore during the year, with volumes nearly quadrupling over the previous fiscal, he added.

While the market volatility is expected to continue in the near term, the outlook for the domestic capital markets remains stable to positive for FY 2019 supported by the increasing financialisation of savings and the strong DII segment, said ICRA.

However, markets and investor sentiment would remain susceptible to events like the outcome of impending state elections, aggravation of geopolitical tensions, uptick in crude prices and hike in US Fed rates, amongst others, which could have a bearing on FPI inflows, it added.

“Going forward, a meaningful revival in corporate earnings, with corporates moving past structural disruptions like demonetisation and GST, would be important for providing a further fillip to the capital markets and boost FPI equity inflows,” added Samriddhi Chowdhary.

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