With Indian economy moving on an up cycle during FY10, FIIs infused $20bn in Indian capital markets, and retail participation has also improved through direct investments through stock brokers, insurance and mutual fund route. There is a significant jump in number of online trading by retail traders and this trend is likely to continue its upward journey. So let us throw some light on this brokerage sector, albeit cyclical in nature.
Corporate fund raising activity (through QIPs, IPO, and debt syndication) has gained momentum during FY10, along with the secondary capital market volumes which has clocked a growth of 60% yoy. This has aided capital market intermediaries’ fee-income substantially. Operating cost of capital market intermediaries is largely variable in nature but still cost effective distribution model – franchisee and online trading through portals helps in keeping a check on operating cost. And, thus operating and net profit margins are likely to remain stable.
India Infoline, Edelweiss Capital and Motilal Oswal are the prominent listed stocks in this sector. Post correction, these stocks are trading at discount to the benchmark index valuations. The valuations are reasonable, which make them stocks to watch on any declines.