A sustained rally in the equity market and spurt in cash volumes have given a new ray of hope to domestic brokers who
have been struggling in the past few years.
Broking officials say trading activity from existing clients has seen a huge spike in recent weeks. ?Several HNIs punted in the market pre-election, which led to a spurt in cash volumes,? said Prasanth Prabhakaran, president, retail broking, IIFL.
Added Girish Dev, director, broking, Capital First: ?Brokers have a much leaner cost structure now. And with the markets turning positive and client participation increasing, any incremental revenue will significantly add to their bottom line.?
According to Rahul Rege, business head, retail, at Emkay Global Financial Services, trading activity of FIIs, HNIs, and compulsive investors has shot up considerably in the past few weeks, but a wider participation would take a while longer.
?Retail investors are yet to make a meaningful comeback, but with a stable government in place and the economic situation expected to improve, their participation should build up slowly. This will have a huge, positive impact on the broking industry,? said Prabhakaran.
Retail turnover in the cash market has seen a rise in recent months, with average daily retail turnover in April touching R8,832 crore, up 17.13% over the previous month. However, at 49%, retail turnover as a percentage of the total cash turnover, is still below the levels seen between 2010 and 2012.
While market participants are confident that the recent rally signals the start of a new, structural bull run, domestic brokers are unlikely to go on an expansion overdrive anytime soon. ?Unlike in 2007 and early 2008, any kind of expansion this time round would be much more sensible,? said Rege.
According to Dev, brokers will try to utilise their existing infrastructure and resources in the immediate term before getting into hiring mode. ?Hiring and branch expansion may begin 4-5 months down the line if retail investors make a meaningful comeback,? said Dev.
Broking stocks have largely been ignored by investors over the past few years, given the low market volumes, according to a recent report by Espirito Santo Securities.
The brokerage believes that these stocks are currently trading at one of their lowest multiples (sub 10x now versus 20x during FY10-11), despite robust balance sheets.
The falling share of cash turnover and the rising share of low yielding options segment in the past few years has hit hard the core broking business of domestic brokers. According to a recent report by Espirito Santo Securities, brokers? share of high yielding cash volumes has declined from 30% in FY08 to less than 10% in Q4FY14, while that of low-yielding options within the F&O segment has increased from 10% in FY08 to 75% in Q4FY14.
Ray of hope
* Retail turnover in the cash market has seen a rise in recent months, with average daily retail turnover in April touching
R8,832 crore, up 17.13% over the previous month
* However, at 49%, retail turnover as a percentage of the total cash turnover, is still below the levels seen between 2010 and 2012
* While market participants are confident that the recent rally signals the start of a new, structural bull run, domestic brokers are unlikely to go on an expansion overdrive anytime soon
