Despite rise in income, profit margin of domestic broking houses remained under pressure in the January-March quarter owing to volatile equities, rise in costs and a higher proportion of low-yield option trading.
Net profit of top domestic brokerages such as Motilal Oswal Financial Services and Edelweiss Financial Services declined by more than 10% Q4FY12 compared with the same period in the previous year. Net profit for IIFL remained flat while that for Geojit BNP Paribas rose 21% on a relatively smaller base. Only Kotak Securities saw a robust 38% increase in its profit. However, net profit for the full year for most brokerages slid drastically, with declines of anywhere between 24% and 45% posted in the period.
There was rise in Q4 income. For instance, total income for Edelweiss rose 23% to R469.3 crore in Q4 from R381.4 crore in the same period of the previous year, while income for IIFL rose 72% toR632 crore from R367.3 crore for the same period. In the year till date, stock prices of Motilal Oswal, IIFL, Geojit and Edelweiss have risen 19%, 11.7%, 4.5% and 3.7%, respectively. However, analysts expect share prices to come under pressure this quarter.
?The market environment has been much more challenging and difficult for the brokers. Margins were eroded as increased competition put pressure on broking rates, retail investors continued to stay away and costs rose as brokers upgraded their technology platforms to meet client needs,? said Anshuman Jaswal, senior analyst ? capital market, Celent Securities and Investments.
Cash volumes rose in Q4FY12 on robust inflows from overseas investors. The proportion of cash to market volumes climbed to about 11% in Q4FY12 from 8% in the previous quarter, while the proportion of high-yield cash delivery to market volumes increased to 2.9% from 2.4% during the same period, according to a report by Motilal Oswal.
Cash volumes increased on an absolute basis across all participant segments tin Q4FY12, led by retail (up 35% Q-o-Q), prop (38%) and FII (29%). Retail continues to comprise 50% of cash volumes, while foreign and domestic institutional investors comprise 17% and 8%, respectively, largely unchanged from the previous quarter, according to the Motilal Oswal report.
Option volumes as a percentage of overall market volumes declined to 67% in Q4FY12 from 70% in the previous quarter. Retail delivery volumes rose marginally but the overall confidence among investors remains subdued.
To navigate these headwinds, top brokers continue to diversify beyond their core offerings. Segments such as retail lending and wealth advisory could contribute 50% of the broking houses? profits in FY13 compared with 25% in FY11, according Crisil estimates.
