According to a report by CareEdge Ratings, brokerages are expected to see a 400 basis point decrease in net profit due to recent regulatory changes. These changes have impacted trading volumes, profitability, and revenue streams in the industry. It is crucial for brokerages to adapt to these changes to maintain stability and growth.
The regulatory measures introduced in the past few months aim to curb excessive retail participation in the derivatives market. This includes increases in security transaction tax rates, revisions in market infrastructure institutions charges, and new rules affecting F&O trading activities. Some notable changes were made during the July 2024 Budget, such as raising STT rates for options and futures orders. These changes have led to a decline in F&O turnover, with volumes dropping significantly.
While F&O volumes have decreased, cash segment volumes have remained relatively stable, with a slight recovery observed in December 2024. In response to these challenges, brokerages are diversifying their revenue sources by focusing on margin trade facility (MTF), which has shown significant growth. The share of MTF interest in total revenues has been increasing, highlighting its importance as a revenue stream amid tightening conditions in the F&O market.
CareEdge Ratings expects the industry’s revenue growth to slow to 13 per cent in FY25, down from a 29 per cent growth rate in the past three years. Despite the impact of regulatory changes, net profits are expected to remain in line with FY24 levels. However, PAT margins are likely to contract in FY25 as brokers’ counter-measures may not fully offset the impact of regulatory changes.
In conclusion, brokerages are facing challenges due to regulatory changes, but they are adapting by diversifying their revenue sources and focusing on MTF as a growth opportunity. It is crucial for the industry to navigate these changes effectively to maintain stability and growth in the future.
