MUMBAI: Earnings growth of Indian stock broking companies in the January-March quarter is likely to be muted as a decline in the high-yielding cash market volume and lull in primary market will weigh on revenue, industry experts and analysts said. The average revenue of domestic broking houses will fall 15-20% sequentially in the fourth quarter, according to brokerage estimates.
"Lack of big initial public offers in the quarter and low retail investor participation hit financing income of brokers and limited margin funding opportunities," Kajal Gandhi, research analyst, ICICI Securities , said in a report.
Total cash volumes in the Jan-Mar quarter were down 23% sequentially due to a lack of retail participation. On the other hand, the share of options in total market volume in the quarter rose to 65% from 57% in the Oct-Dec period, an ICICI Direct earnings preview report showed.
The contribution of the cash segment to the average daily turnover fell to an all-time low of 10% in Jan-Mar from 14% in the previous quarter. This is despite a 5% sequential rise in the average daily turnover in the last two quarters, Gandhi said. The cash segment contributed 20% in Jan-Mar of the fiscal 2009-10 and was steady at 16% in the two subsequent two quarters.
Leading financial services firms such as Edelweiss Capital and Motilal Oswal Financial Services have witnessed a fall in market share due to the rise in options volume.
Also, the presence of new foreign players is eating into the market share of local broking firms. "The entry of foreign brokerages like Standard Chartered and Barclays will further put pressure on our revenue and will create stiff competition in an already saturated market," said the head of a listed brokerage.
Ancillary revenues related to investment banking and financing are also expected to decline due to a lull in the primary market in the fourth quarter amid uncertain sentiment. The decline in merger and acquisitions has also hit revenues, analysts said. Equity capital raising declined 90% sequentially in the Jan-Mar period, Bloomberg data shows, which led to a setback in interest income that was driving revenue growth.
"We expect a considerable Q-o-Q dip in top-line and bottom-line growth of brokerage firms for Q4FY11 as total revenue is seen down on account of lower business momentum in various verticals," Gandhi said.
Analysts expect earnings of brokerages to remain subdued for at least two more quarters. The stock prices are already reflecting this with brokerages underperforming broader markets over the last one year and trading at depressed multiples of 10-12x FY12 earnings, they said.
While analysts do not see any near-term trigger for brokerages that could prompt a rerating, the long-term growth of the sector remains intact due to under-penetration of equities in the savings pie of Indian households.
MUMBAI: Earnings growth of Indian stock broking companies in the January-March quarter is likely to be muted as a decline in the high-yielding cash market volume and lull in primary market will weigh on revenue, industry experts and analysts said. The average revenue of domestic broking houses will fall 15-20% sequentially in the fourth quarter, according to brokerage estimates.
"Lack of big initial public offers in the quarter and low retail investor participation hit financing income of brokers and limited margin funding opportunities," Kajal Gandhi, research analyst, ICICI Securities , said in a report.
Total cash volumes in the Jan-Mar quarter were down 23% sequentially due to a lack of retail participation. On the other hand, the share of options in total market volume in the quarter rose to 65% from 57% in the Oct-Dec period, an ICICI Direct earnings preview report showed.
The contribution of the cash segment to the average daily turnover fell to an all-time low of 10% in Jan-Mar from 14% in the previous quarter. This is despite a 5% sequential rise in the average daily turnover in the last two quarters, Gandhi said. The cash segment contributed 20% in Jan-Mar of the fiscal 2009-10 and was steady at 16% in the two subsequent two quarters.
Leading financial services firms such as Edelweiss Capital and Motilal Oswal Financial Services have witnessed a fall in market share due to the rise in options volume.
Also, the presence of new foreign players is eating into the market share of local broking firms. "The entry of foreign brokerages like Standard Chartered and Barclays will further put pressure on our revenue and will create stiff competition in an already saturated market," said the head of a listed brokerage.
Ancillary revenues related to investment banking and financing are also expected to decline due to a lull in the primary market in the fourth quarter amid uncertain sentiment. The decline in merger and acquisitions has also hit revenues, analysts said. Equity capital raising declined 90% sequentially in the Jan-Mar period, Bloomberg data shows, which led to a setback in interest income that was driving revenue growth.
"We expect a considerable Q-o-Q dip in top-line and bottom-line growth of brokerage firms for Q4FY11 as total revenue is seen down on account of lower business momentum in various verticals," Gandhi said.
Analysts expect earnings of brokerages to remain subdued for at least two more quarters. The stock prices are already reflecting this with brokerages underperforming broader markets over the last one year and trading at depressed multiples of 10-12x FY12 earnings, they said.
While analysts do not see any near-term trigger for brokerages that could prompt a rerating, the long-term growth of the sector remains intact due to under-penetration of equities in the savings pie of Indian households.
"Lack of big initial public offers in the quarter and low retail investor participation hit financing income of brokers and limited margin funding opportunities," Kajal Gandhi, research analyst, ICICI Securities , said in a report.
Total cash volumes in the Jan-Mar quarter were down 23% sequentially due to a lack of retail participation. On the other hand, the share of options in total market volume in the quarter rose to 65% from 57% in the Oct-Dec period, an ICICI Direct earnings preview report showed.
The contribution of the cash segment to the average daily turnover fell to an all-time low of 10% in Jan-Mar from 14% in the previous quarter. This is despite a 5% sequential rise in the average daily turnover in the last two quarters, Gandhi said. The cash segment contributed 20% in Jan-Mar of the fiscal 2009-10 and was steady at 16% in the two subsequent two quarters.
Leading financial services firms such as Edelweiss Capital and Motilal Oswal Financial Services have witnessed a fall in market share due to the rise in options volume.
Also, the presence of new foreign players is eating into the market share of local broking firms. "The entry of foreign brokerages like Standard Chartered and Barclays will further put pressure on our revenue and will create stiff competition in an already saturated market," said the head of a listed brokerage.
Ancillary revenues related to investment banking and financing are also expected to decline due to a lull in the primary market in the fourth quarter amid uncertain sentiment. The decline in merger and acquisitions has also hit revenues, analysts said. Equity capital raising declined 90% sequentially in the Jan-Mar period, Bloomberg data shows, which led to a setback in interest income that was driving revenue growth.
"We expect a considerable Q-o-Q dip in top-line and bottom-line growth of brokerage firms for Q4FY11 as total revenue is seen down on account of lower business momentum in various verticals," Gandhi said.
Analysts expect earnings of brokerages to remain subdued for at least two more quarters. The stock prices are already reflecting this with brokerages underperforming broader markets over the last one year and trading at depressed multiples of 10-12x FY12 earnings, they said.
While analysts do not see any near-term trigger for brokerages that could prompt a rerating, the long-term growth of the sector remains intact due to under-penetration of equities in the savings pie of Indian households.
I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.
ReplyDeleteregards
options trading