Why does ICRA expect broking company revenues to boom in FY22?

A recent report by ICRA suggests that revenues of the Indian broking industry would grow by 32% in FY22. This is largely likely to be helped by the sharp growth in number of trading and demat accounts as well as the spike in average daily turnover. ICRA expects FY22 revenues to touch Rs.28,000 crore, the highest ever recorded. However, growth in broking revenues could moderate to 5% in FY23. For now the focus is on FY22.

Profit impact may still be spasmodic since the transaction volumes were largely driven by the futures & options segment with cash market volume growth relatively subdued. For instance the average daily turnover (ADTO) grew from 2.3 times to Rs.63 trillion in FY22, which is almost 4-times the ADTO levels of FY20. This has been driven by liquidity, steady corporate earnings, economic revival and surge in internet trading options.

However, the profitability could gain from positive factors and proactive actions like trimmed cost structures and operational efficiency. Brokers have largely focussed their attention on acquisition of new customers via digital channels. This has made the client acquisition process scalable, simpler and region agnostic. IN addition, the ICRA report also noted that larger brokerages had substantially scaled up their margin trading books.

The secret behind the growth in capital market volumes has been the rapid growth in demat accounts. Just look at the numbers. Active demat accounts grew from 4.08 crore in March 2020 to 5.51 crore in March 2021 and still further to 8.06 crore in December 2021. That is doubling of demat accounts in just about 20 months. Growth has gravitated towards the large established entities with a strong presence in online broking.