PhillipCapital says that lending to traders, not trading itself, will drive the next phase of earnings. Brokerage per order has fallen to Rs 3 to 5 from Rs 20 to 25 in FY10, the report estimates. Regulation has curbed derivatives and float income. So, brokers are turning to margin trading facility, where they lend clients money to buy shares. The industry book has grown sixfold since FY23 to Rs 1.52 lakh crore.
Groww holds 28.7% of NSE active clients but only 2.7% of that book. Angel One funded its push with debt. Its borrowings rose to Rs 7,879 crore in March from Rs 3,383 crore a year earlier.
The report therefore flags funding as the key credit risk. The report stops short of calling broking less cyclical. It describes "a growing underlying profit pool with a cyclical overlay".
The brokerage started coverage of the Indian broking industry, rating Angel One and Groww as a 'buy'. Its target for Angel One is Rs 388, 42% above Rs 274. Its target for Groww's parent, Billionbrains Garage Ventures, is Rs 245, 33% above Rs 184.
The report says brokers sit at the centre of India's capital markets. It says the first phase of digital customer acquisition is "well established". The next phase will be "defined by how effectively brokers monetise their growing customer franchises".