CDSL, which provides depository services, added over 1 crore investors in the last one year. It now has 3 crore demat accounts. Its rival NSDL crossed the 2 crore mark in demat accounts, riding on the surge in retail investor participation since last March.
One estimate showed around 98.4 per cent of these new demat accounts belonged to retail investor. G V Nageswara Rao, MD & CEO of NSDL, expects this growth rate in demat accounts to continue as penetration level remains low.
This sudden influx of new investors coupled with increased market activity have helped brokers register 30-35 per cent growth in income in FY21. The brokerage industry is estimated to have clocked a record-broking income of Rs 27,500-28,500 crore for the financial year, said Samriddhi Chowdhary, Vice President & Co-Head for Financial Sector Ratings at ICRA.
But the industry may not be able to repeat the performance in the coming year, as rising bond yields and inflation threaten to stall the stocks rally, which may make it less attractive to trade, especially for retail investors.
Moreover, regulatory changes requiring peak margin collection remain key risk to volumes. By September 2021, brokers will need to collect 100 per cent margins for peak positions that may bring down volumes by 30 per cent, some estimates showed.
“The industry growth rate is expected to moderate in the following financial year with a gradual moderation in transaction volumes. Consequently, ICRA expects the industry’s aggregate broking income to touch Rs 29,500-30,500 crore (YoY growth of 7-8 per cent), in FY2022. Growing retail share along with increased interest and other fee income are expected to support profitability,” Chowdhary said.
New sources of income
However, brokers are arming themselves with new sources of income, and not relying on broking fees alone to keep the growth momentum intact. They are diversifying into mutual fund distribution and offering loans against securities.
“Zerodha has launched loans against shares/MF units through its NBFC to monetise its customers beyond broking. With loan against shares, which is still in beta phase, Zerodha targets to generate 300-400 bp spread with an average tenure of one year, average ticket size of Rs 50,000 at an interest rate of 12-15 per cent. Initially, it aims to build a book of Rs 100-200 crore primarily out of its own capital,” noted Ashish Gupta and Viral Shah of Credit Suisse.
Brokers are also providing access to foreign markets to attract niche investors. For example, Upstox facilitates investment in global equities in 25 countries through over 60 exchanges.
Should you buy broking stocks?
Not many broking companies are listed on the exchanges. Analysts are mostly positive on the listed names, but have a cautious view on them for the next one year.
ICICI Securities has an ‘add’ rating on Motilal Oswal Financial Services with a 12-month price target of Rs 740, as it sees ‘uncertainties ahead’. The potential upside turns out to be 21 per cent. “The impact of the second phase of peak margin requirement on trading volumes remains a key risk in Q4,” the brokerage said.
Credit: economictimes.indiatimes.com
