‘Equity brokerage rev pool down 20%’

The increasing cost of regulatory compliance further exacerbated the pressure on profitability of broking companies. With the persistence of these changed industry dynamics,market players also continue to focus on containing costs,restructuring business models and relatively larger players with access to capital are exploring alternate sources of revenue and profits,it said.

The year 2011-12 also marked a more focussed attempt by brokerage houses to de-risk business models by continued diversification into many related as well as unrelated businesses like commodities broking,currencies broking,commodities and currencies proprietary trading,capital market financing,mortgage financing and gold loans.

Commodities broking and to a lesser extent currency broking have emerged as asset classes which provide brokerage houses with opportunities to create a horizontally diversified business model.

In ICRA’s estimation,the broking revenue pool for commodities and currencies put together,now account for 20-25 percent of the overall equity brokerage revenue pool.

“As and when non-equity asset classes gain further traction,brokerage houses which are able to successfully adjust to changed market dynamics may be better positioned to face the current headwinds faced by this industry,” ICRA Ltd’s Co-head Financial Sector Ratings,Karthik Srinivasan said.