What IPOs mean for the brokerage industry?


The Indian brokerage industry has had a really good run within the last year with the stock exchange booming despite the continued Covid-19 crisis. The otherwise trying time saw the onset of two new strong trends in financial markets the return of the retail investors and corporations coming to the first market with unprecedented force.

These two factors have kept the brokerage sector busy also as thriving. On its part, broking companies improved their platforms to plug simple trading with the adoption of technologies like AI (AI), lowered brokerage fees, and tweaked their offering to suit the requirements of the latest investors.

All these efforts helped the brokerage industry bear fruits and are future-ready for the trend that’s to remain for an extended-term. Rating agency CRISIL estimated booking revenue to have grown around 65-70% during the financial year 2020-21 as against about 7% growth to the previous fiscal. Although the revenue forecast seems dimmer for the present fiscal year and doubtless beyond, due to the market and regulatory factors, there’s no denying that the industry has entered one of its most exciting times.

Riding the IPO boom
What has also ushered during a phase of change for the industry is that the launching of initial public offers (IPOs). According to PrimeDatabase, 69 public issues raised Rs 74,707 crore in FY21 then far, this fiscal, around 24 companies have raised the maximum amount as Rs 37,366 crore. The stock market debut frenzy was triggered by the food delivery app Zomato NSE -1.34 %, which raised $1.3 billion from the primary market this year. The owners of fintech apps like Paytm are looking forward to the IPO. The $2 billion public issues are slated to be the most important IPO in India since the Coal India IPO in 2007. Several other unicorns and interesting start-ups joining the fray include PolicyBazaar, MobiKwik Systems, Nykaa E-Retail, and Delhivery.

Time for innovation
The IPO boom is predicted to bring more millennials to the stock exchange given the worth they see in these services companies which are in insurance, food delivery, and e-commerce, things they use on an everyday basis. With the onset of the new-age investors, helped by increased internet penetration and income, the brokerage industry will undergo a transformation in terms of the utilization of technology. Already, a replacement crop of brokerages like Zerodha has been creating waves within the industry.

Bumps that can be straightened out
There are opportunities for revenue growth and therefore the brokerage industry is probably going to face pressure from the new regulatory changes. Two key implementations which will impact revenue growth are the upfront margin requirement mandated by the Securities and Exchange Board of India from last year and therefore the phased increase in peak margin requirements, which can go up to 100% by September 2021. So albeit new client additions usher in more revenue, these requirements would dent full potential. If Sebi were to reconsider its decision on these policies, the brokerage industry would be able to ride high.

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