Among the listed brokers such as Billionbrains Garage Ventures (Groww), Motilal Oswal Financial Services, Angel One, and Anand Rathi Share & Stock Brokers, revenues advanced between 9% and 14% in the December quarter, compared with the July-September period. The quarterly revenues of IIFL Capital Services fell 2% in December. The profits after tax (PAT) grew 21-32% for these players.
Agenciesstrong activity Revenue and profits largely driven by increase in MTF book; BSE and NSE also improve their top line & bottomline performance over Q2
Both BSE and NSE saw a growth in their profits and revenues in the third quarter, compared with the second quarter.
“Sequential increase in revenue and profits was largely driven by increase in the margin trading facility (MTF) book and corresponding interest income thereon. It was also supported by increase in fees and commission income backed by modest increase in average daily turnover (ADTO) both across cash and derivatives segment,” said Roop Bhootra, whole-time director, Anand Rathi Share and Stock Brokers.
NSE had said its cash market trading segment’s average daily traded volume (ADTVs) went up 3%, while ADTV for equity futures segment in October-December was up 8% and for equity options (premium value) advanced 15% from the previous quarter.
Raj Gaikar, research analyst at Samco Securities said the third quarter reflected both cyclical momentum in trading volumes and gradual structural improvement in revenue mix.
“While part of the comparison benefited from a relatively softer phase earlier, the growth was not merely due to a lower base. It was supported by strong trading activity across segments, especially in commodities where volatility in gold and silver lifted volumes significantly,” he said. “Primary market activity also remained healthy, with robust fund-raising and IPO participation supporting exchange transaction income and broker distribution revenue.”In addition, Gaikar said, brokers are increasingly earning from interest income, wealth management, and asset management businesses, which helped improve earnings quality. Many players now do not remain purely brokers. Most of the new-age as well as traditional brokerages have extended their operations into wealth management, mutual fund distribution and even Insurance and NBFC businesses. Bhootra also said divergence in the profitability seen on a yearly basis is due to varied business models adopted by players across the street wherein few are predominantly into broking and distribution and few are diversified financial services entities. Shares of brokers have seen a mixed response in the past few months. While the newly-listed Groww and Anand Rathi Shares have risen 27% and 19% since their listing last year. IIFL Capital is up 1% in the past six months while Angel One and Motilal Oswal Financial Services have declined 3.5% and 16% in this period. BSE shares are up 10.3%. The Nifty 50 has gained 3.4% while the Nifty 500 index has advanced 2.7% in the past six months.
THE ROAD AHEAD
Kalyanaraman R, MD at BlinkX by JM Financial, said the recent RBI norms on increasing collateral will impact proprietary trading, which contributes around 50% of options volumes and about 30% of cash segment volumes. “This will also impact MTF, as brokers will have to look beyond banks for funding. Overall, volumes could see an impact due to the new RBI norms,” he said.
The new rules laid down by the Central Bank are set to take effect from April 1 onwards, and impact could be seen on first quarter results for FY27. Bhootra also said with the increase in the Securities Transaction Tax (STT) in the recent budget and new RBI norms, market turnover might decline in the range of 15-20%.
“Q4 could continue to see healthy activity if volatility sustains and primary market flows remain steady. However, regulatory measures aimed at moderating derivatives volumes may lead to some cooling in speculative activity in Q1,” said Gaikar.
Brokers with a high dependence on derivatives turnover could see some moderation in growth, especially if retail participation slows, he said. But firms with diversified revenue streams such as wealth management, asset management, and distribution income are better placed to manage any slowdown. Investors can buy shares of these companies but only after analysing their revenue mix.
“After a strong run supported by robust earnings, valuations in parts of the sector are no longer inexpensive. Exchanges, given their strong margins and entry barriers, continue to justify premium multiples, while diversified brokers with improving revenue mix also remain attractive for long-term investors,” said Gaikar. However, pure transaction-led models may face volatility if derivatives volumes normalise, he said. BSE remains his top pick.