Brokerage Margins Impact: What’s causing profit decline in major broking firms?

Mumbai: The profitability of most large listed broking firms took a severe beating in the March quarter, weighed down by a slew of stricter regulations, scrapping of some popular derivative products and lower trading activity in the wake of the stock market decline.

For instance, Angel One recorded a 40% decline in its standalone profit and a 17% drop in standalone revenue in the fourth quarter as against the December quarter. Motilal Oswal Financial Services posted a loss of over ₹8 crore on a standalone basis in Q4. Standalone profits of other listed brokers such as IIFL Capital Services, 5paisa Capital and Choice International also fell 35-61% in the March quarter compared to October-December. The drop in profits and revenues during the quarter is an outcome of some of the steps taken by the Securities and Exchange Board of India (Sebi) to curb the excessive speculation by retail traders in futures and options over the last three years. The regulator’s decision asking exchanges to provide derivatives contracts for only one of its benchmark indices with weekly expiry in November forced bourses to scrap some of their highly traded index options.

“We’ve seen a dip primarily due to Sebi’s regulatory changes like increasing lot sizes and reducing the number of weekly expiries,” said Gagan Singla, managing director at BlinkX by JM Financial. “These moves, while well-intentioned, have impacted retail participation and strategy rotations, especially in index options. Add to that a spike in transaction costs like STT, and naturally, trading activity, especially from retail, really took a hit.” The average daily turnover on NSE in the cash market declined by almost 19% from September 2024 to March 2025, while equity derivatives’ turnover on the NSE declined by 27% in this period, as per NSE data.

Sebi’s ‘uniform fee structure’ and ‘true-to-label’ norms announced in July last year also squeezed brokerages’ profits. The uniform fee structure requires market infrastructure institutions (MIIs) such as exchanges to collect the same charges from all brokers. Till then, brokers got discounts on basis of volumes generated. The true-to-label norms require brokers to pass on to MIIs the exact charges they collected from clients. Earlier, brokers would collect full charges from clients but would only pass on a part of it to exchanges.

“There have been multiple structural changes undertaken by Sebi like introduction of the ‘true-to-label’ norms, crackdown on influencers and discontinuation of many weekly derivatives contracts, which have hurt the income of brokers,” said Ajay Kejriwal, executive director at Choice Equity Broking.

Among stock exchanges, BSE’s consolidated net profit in March quarter shot up 126% from previous quarter, whereas NSE’s profit fell 31%. Kejriwal said BSE did well as traders moved to Sensex weekly options after the discontinuation of multiple weekly derivatives contracts such as Nifty Bank index.Shares of Motilal Oswal, Angel One, IIFL Capital, and 5paisa are down 4-20% in 2025. BSE shares have gained 29% in 2025 so far.For the broking business to recover, equities must either rebound or firms must increase costs. “Since most changes are permanent, brokers are expected to see weakness until market recovers significantly, or if they take large price hikes, and Q1 results may not be positive,” said Kejriwal. The times of supernormal growth might be over for now.

“We wouldn’t call this the new normal, but more of a recalibration,” said Singla. “Volumes are down from the peaks, but they’re still multiple times higher than five years ago. What’s likely from here is more linear, sustainable growth, not the explosive spikes we saw post-Covid.”