After a dream run, the domestic capital market activity witnessed a moderation in the first half of this fiscal, taking a toll on broking firms’ financials., said a report by ICRA.

The aggregate volume growth of equity markets more than doubled year-on-year, even as the high-yielding cash volumes fell 8 per cent during this period, said the report.

Market sentiments have been impacted by the escalation of geopolitical tensions into war, supply chain disruptions in relation to pent-up demand, weak listing gains in initial public offerings and elevated crude oil prices.

Indian markets insulated

Nonetheless, Indian markets have continued to outperform the major emerging market indices, supported by the healthy participation of domestic investors. With India’s economic recovery likely to be less disruptive compared to the challenges of higher inflation and tightening financial conditions faced by key global economies, the domestic capital markets are expected to remain supported by the improvement in fundamentals.

Subhrajyoti Mohapatra, Senior Analyst - Financial Sector Ratings, ICRA, said the securities broking industry is expected to clock gross operating income of ₹37,700-38,700 crore in FY23, registering a 3-6 per cent growth compared to about 33 per cent growth in FY22.

While the scale-up of the margin trading facility has supported the growth in other allied income streams, core broking income is expected to continue to account for the lion’s share of the revenue mix at 60-70 per cent of the gross operating income, said Mohapatra.

Dampened investor sentiment

However, with the dampening of investor sentiment on account of adverse macroeconomic developments particularly in June quarter, the performance moderated in the first half of this fiscal with an 8 per cent year-on-year decline in net profit.

Deep Inder Singh, Vice-President and Sector Head - Financial Sector Ratings, ICRA, said the retail broking segment witnessed a moderation in fresh investor addition in the current fiscal after witnessing record client additions in the past two fiscals. Furthermore, the industry witnessed a moderation in participation from existing retail investors, which was evident from the marginal decline in the active NSE client base in eight months of this fiscal.

The competitively priced offerings of discount brokers and their no-frill basic accounts and services have resulted in the realignment of the pricing strategy with growing focus on subscription-based broking models among traditional players.

Given the increased regulatory oversight and the cost of implementing the processes, many small brokers and sub-brokers have become partners of well-established players.

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