Brokerages get a Q1 bounce, but the YoY gap's still wide
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Most listed broking firms posted a rebound in profits and revenues in the June quarter from January-March, boosted by improved trading activity in the wake of the stock market recovery. But their earnings performances still paled in comparison to last year as volumes, especially derivatives, remained below their peak levels in 2024.In the June quarter, Motilal Oswal Financial Services ' standalone profit after tax stood at ₹532 crore in the first quarter, against a loss of ₹8 crore in January-March. The standalone profits of IIFL Capital Services and 5Paisa Capital went up by 140% and 15% respectively, from the March quarter.Angel One's standalone net profits declined 26% to ₹134 crore in the June quarter. The benchmark Nifty 50 advanced 8.5% in the April-June period, compared to January-March, when it declined 0.6%."Brokerage firms' earnings remained muted in the first quarter, weighed down by a nearly 15% year-on-year drop in cash market volumes and a 25-30% decline in derivatives premiums," said Suresh Shukla, chief business officer at SBI Securities. "Firms more reliant on derivatives income, like discount brokers, faced steeper revenue pressure than those with higher cash market exposure."Since 2024, revenues and profits of brokers have remained under pressure due to some of the steps taken by the Securities and Exchange Board of India (Sebi), like allowing only one weekly index expiry per exchange, as well as uniform fee and 'true-to-label' norms introduced last July, which ended volume-based discounts and required brokers to pass on full exchange charges to MIIs ( market infrastructure institutions ), hurting their incomes.Shares of the broking companies have declined between 1% and 37% this year, whereas the Nifty 50 is up 3.7% and Nifty 500 has gained 1%.Analysts are in no hurry to recommend broking shares to clients despite the recent declines."Although valuations of listed broking firms have moderated amid a decline in share prices, we remain cautious on the sector," said Apurva Sheth, head of research at Samco Securities. Sheth said the performance of broking firms will continue to track overall market trends.Among the exchanges, profits of both BSE and NSE advanced from the March quarter. While NSE's profits went up 14% from the previous year, BSE gained 103%. "BSE has shown stronger performance on the back of gaining market share from its peer," said Shukla. The stock is up 40% this year. Sheth said BSE appears fairly valued following strong Q1 results and sees limited upside from current levels.With second-quarter activity still subdued, a meaningful recovery in broker incomes will depend on indices regaining momentum in the second half of the year, said Shukla.Sheth also said while benchmarks are expected to remain stable due to steady SIP inflows, they are unlikely to surpass previous lifetime highs in the near term.
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