industry broking income expected to grow by 12-15% in FY 2017: ICRA

COMMODITY TIPS INDUSTRY BROKING EXPECTED TO GROW BY 12-15%:-

Following a lukewarm FY16 partly on account of a challenging operating environment, impact due to the increase in minimum contract size for option trading and the withdrawal of liquidity enhancement schemes that were introduced earlier, H1 FY17 saw aggregate equity market volumes recover by 14% and ADTO increase by 15%.
ADTO in H1 FY17 was higher at Rs 3.6 trillion when compared with Rs 3 trillion in FY16 and Rs 3.3 trillion in FY15. Both the decline in market volumes in FY16 as well as their improvement in H1 FY17 was led by the derivatives segment which witnessed a 9% decline in FY16 and a 14% YoY growth in H1 FY17. With the volume growth in cash and derivatives segments remaining similar, the proportion of cash and derivatives volumes continued to remain stable and stood at 7:93 during H1 FY17.
Karthik Srinivasan, Senior Vice President, ICRA Limited, said “Though the H1 FY17 performance has been better than H1 FY16, any adverse impact of the recent rate hike by the US Federal Reserve, delayed pick-up in growth and corporate profitability following the demonetisation and global volatilities could partly impact broking volumes during the second half. However increasing activity levels by the DIIs could partly alleviate concerns on reduction of trading volumes. Hence, we estimate equity market volumes growth rate of 12-15% for FY17.”
In H1 FY17, commodity market volumes rose marginally to Rs 36.8 trillion (ADTO of Rs 0.28 trillion) from Rs 34.9 trillion (ADTO of Rs 0.27 trillion) in H1 FY16. Data from exchanges indicate that the mix of volumes across commodities has remained largely stable in the last one year with Bullion contributing the largest share (36% of volumes in H1 FY17) followed by Energy (34%), Base Metal (28%) and Agricultural Commodities (2%).
Currency trading volumes of brokerage houses have, nevertheless, grown significantly in the last 12 quarters. In the period between Q1 FY17 and Q1 FY15, volumes grew at a CAGR of 48%. In Q2 FY17, however, currency trading turnover witnessed a marginal softening to Rs 18.9 trillion from Rs 20.6 trillion in Q2 FY16.
On the back of top-line pressures, both RoE and RoA witnessed softening in FY16. ICRA believes, going forward, the credit profiles of medium and large brokerage houses shall witness greater de-linking from the volatility of the domestic equity markets as they improve revenue diversification and improve usage of cost light business model. Given continued focus on lowering cost structures while expanding reach into underpenetrated regions, ICRA’s near to medium term outlook for the profitability of these brokerage houses remains positive.

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