Brokerages' Q4 core incomes to see sharp drop

Indian brokerages are likely see their Jan-March earnings nearly halved from the previous quarter, mirroring the sharp fall in trading volumes in the equity market, officials said.

The average daily derivatives turnover on National Stock Exchange (NSE) dipped to Rs 45600 crore in March from Rs 67000 crore in December, according to the NSE website.

The average turnover in the cash segment of NSE fell to Rs 14000 crore at the end of March from Rs 19300 crore.

"It (the impact) would be in line with the market volume, so the market volume has come down by 50 percent, the broking volume will come down by 50 percent," said Rashesh Shah, chairman of Edelweiss Capital.

There will be decline in the earnings on a quarter-on-quarter basis, but on a year-on-year basis the earnings will be very high and could be five times higher than last year, said Motilal Oswal, chairman of Motilal Oswal Financial Services.

The benchmark 30-share BSE index has shed more than 22 percent during the first three months of 2008.

Spreading to contain

"We don’t use these huge rises in the market as the basis for making a future projection," Amit Majumdar, executive director, Angel Broking, said when asked about his expansion plans.

Angel Broking's average daily trading volume has come down to about Rs 2000 crore against Rs 3500-4000 crore earlier, he said.

However, the revenue impact would not be so high as many clients have switched to delivery-based trading, he added.

"The market has moved from unsafe hands to safer hands, which means it has moved from F&O (futures & options) based business to delivery based business."

"So, though its a Rs 2000 crore business, the brokerage rate is higher as delivery charges are higher, so you tend to break even," Majumdar said.

Indian brokerages have been rapidly expanding their services and reach to tap the huge potential in smaller towns and cities.

India has 193 broking firms with terminals in more than 100 cities and 25 of them have more than 1,000 terminals each, advisory firm Dun & Bradstreet said in a report.

They are also diversifying their income stream by distributing third-party financial products like mutual funds, insurance products and earnings fees from them.