Retail broking firms saw a major dip in their revenues in the June quarter

RELATED ARTICLES Sebi rejigging rules to fast forward QFI entry Biz confidence improves moderately in Q1 FY13: CII

after retail investors stayed away from the market, which has been range-bound for some time now, even as firms like Motilal Oswal Financial Services, Edelweiss Capital and JM Financial Services made up the decline by showing better revenues from institutional broking and investment banking businesses.

Biggest decline among the brokerages was reported by Geojit BNP Paribas Financial Services (down 61.4 per cent on y-o-y basis), which includes losses incurred by institutional brok­ing venture (Rs 2.87 crore) and joint venture in Saudi Arabia (Rs 85 lakh).

C J George, managing director, Geojit BNP Pribas Financial Services said, “On a y-o-y basis there was a decline in retail market volume by 36 per cent during the first quarter which has an adverse impact on the first quarter performance.”

However, some broking firms that are not focused on retail clients managed a better show.

“Since the market has been range-bound during the quarter, the retail participation was low leading to flat or slightly negative revenue from broking business,” Motilal Oswal, CMD, Motilal Oswal Financial Services (MOFSL), said.

MOFSL’s broking and related revenues were down 4 per cent to Rs.111.2 crore as compared to Rs.115.7 crore in the same quarter of previous year.

Edelweiss Capital, which is largely focused on institutional clients saw its standalone profit rise by more than 30 per cent to Rs 15.5 crore against a profit of Rs 11.49 crore in the corresponding quarter in FY10.

“Institutional brokerage business performance for the quarter has been in line with the markets,” Edelweiss Capital said while announcing its June quarter numbers.

Higher income from investment banking and asset management businesses also made up for the loss of revenue in the broking segment for many of these financial services firms.

“Broking firms’ income was impacted because retail participation was not there despite Sensex touching 18,000 level. Investor confidence was very low due to crisis in Europe and the US, interest rate hike fears in the domestic market,” said Kishor P Ostwal, CMD, CNI Research.

“Some sanity has returned in the month of July, but we are still cautious of brok­ing firms’ performance for one more quarter,” Ostwal said.

Another reason is expansion of broking firms’ network. Lot of brokers are establishing large number of franchisees resulting in a fierce competition leading to poaching of clients as well as low brokerage charges leading to a dip in their revenue.

People are sitting on cash or investing in other asset class. Gold prices have sustained the high level indicating people are still buying gold. Unless market tests new high people will not come to the equity market, Ostwal said.

Also, people do not feel safe while investing in the equity market, only 2 per cent of Indian population invests in share market, Ostwal said.

Life insurance companies saw a 76 per cent rise in premium income during the quarter indicating some money is being diverted towards insurance. Top insurance major LIC’s premium income went up by over 107 per cent while ICICI Prudential Life Insurance and HDFC Standard Life’s premium income grew by 74 per cent each.

Lower churn by mutual funds due to non-growth in asset under management also led to decrease in revenue income of the brokerages, some analysts said.

Another reason for lesser revenue is that option trading is getting higher volume in exchanges’ total turnover, but is giving lower yield.

“High volume in option trading, which is a low yield product, means lower commission for the brokerages. Option trading has gone up. The turnover comprises 53 per cent of the total turn­over on the exchanges, said Pankaj Agarwal, analyst with Execution Noble, an equity advisory firm.

Retail participation has still not picked up while the volume in proprietary trade has no commission, Agarwal said. When we try to assess as to where the money is going, bank deposits also don’t give any clue, as deposit growth in banks is also not very high, an analyst said.