New Delhi, Feb 10 (UNI) Diversification of revenue streams has emerged as a critical buffer for broking firms amid rising regulatory and tax-related headwinds, according to a report by Crisil Ratings.
The assessment comes in the backdrop of a proposed increase in securities transaction tax (STT) on derivatives in the union Budget 2026–27 and a series of regulatory changes introduced by the Securities and Exchange Board of India (SEBI).
Crisil Ratings said recent policy measures aimed at curbing speculative activity and enhancing investor protection have led to a sharp decline in trading volumes.
Average daily turnover across capital market segments fell by about 25 per cent in the second half of the previous fiscal year, and despite a partial recovery, remains below earlier peaks. This resulted in a six per cent year-on-year decline in industry revenues in the first half of fiscal 2026.
The rating agency analysed the performance of 25 broking firms over fiscal 2025 and the first half of fiscal 2026, categorising them into traditional brokerages, diversified players, and proprietary trading firms.
The study found that firms with diversified income sources, such as distribution, wealth management, investment banking, and interest income from margin trading facilities, were better positioned to absorb market volatility.
According to Crisil, diversified players derived nearly two-thirds of their revenues from non-broking and non-trading activities, enabling them to record the least impact from regulatory and volume-related disruptions.
In contrast, traditional brokerage firms, which depend heavily on transaction fees, saw revenues decline by around 15 per cent in the second half of fiscal 2025 compared with the first half.
Proprietary trading firms were the most affected, with revenues falling by about 25 per cent in the second half of fiscal 2025 following SEBI’s decision to limit weekly expiry derivative products, which reduced arbitrage opportunities.
Crisil warned that the proposed hike in STT could further impact proprietary traders, including high-frequency traders and arbitrageurs, who account for nearly 60 per cent of market volumes.
While several brokerage firms have taken steps to diversify their revenue mix and increase interest income from margin trading, Crisil said the effectiveness of these measures in cushioning against future regulatory or external shocks remains to be seen.
The report also cautioned that higher taxes on derivatives could adversely affect market liquidity and trading activity in the near term.
