Can Stockbrokers Thrive In The Long Run?

Technological advances and regulatory changes are bringing a sea change to the industry

- Arul Selvan and Samridh Rela

The pandemic turned out to be an opportunity in disguise for the equity broking industry. The work-from-home culture, coupled with the bull run (immediately after a steep decline in 2020) and convenient trading mechanisms (mobile apps), gave a major fillip to stockbrokers. As a result, listed stockbrokers posted strong results for multiple quarters.

However, with the restoration of normalcy post pandemic, the good days are coming to an end for stockbrokers, as a number of tailwinds that caused the boom are now fading away. Markets have plateaued due to various factors like geopolitical tensions, hawkish monetary policy, etc. This contributed to a significant decline in retail participation in trading (the number of monthly net new demat accounts fell from about 36 lakh in Oct 2021 to around 19 lakh in March 2023). Besides, an industry-wide decline in brokerage charges resulted in lower incremental revenues and profits.

Since there has always been a correlation between trading volumes and the levels of the indices, this sort of boom and bust is not unexpected in the broking industry. However, it seems quite unlikely that the next boom will benefit brokers.