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MUMBAI: As stock markets remained volatile in the first quarter of fiscal 2020-21, companies that derive their business from investing in capital markets reported mixed earnings in the April-June period. Brokerage firms and asset management companies (AMCs) saw better earnings in the fiscal first quarter than insurers.

The quarter was also challenging for domestic mutual fund industry as active equity inflows declined while contributions from systematic investment plan (SIP) shrunk due to a correction and volatility in the stock markets.

Decline in AMCs’ businesses income was offset by mark-to-market gains in Q1 but for insurers, growth was subdued due to lower annual premium equivalent (APE) in April-June.

As retail investors flocked to equities to take advantage of the crash in stock markets in March, higher cash average daily trading volume in 1QFY21 amid a rise in retail participation led to broking revenues and earnings growth during the period.

For instance,ICICI Securities delivered 47% year-on-year growth in profit before tax to 260 crore for the June ended quarter. Strong growth in brokerage business was partly offset by muted performance in distribution while investment banking revenues rose 34% YoY and more than doubled sequentially during the period under review. In equities business, ICICI Securities saw a 90% YoY increase in number of customers trading on a daily basis.

Similarly, a strong spurt in cash volumes bolstered capital market earnings of Motial Oswal Financial Services in the fiscal first quarter, while a 16.2% YoY decline in quarterly average assets under management (AUM) hurt its AMC businesses. Robust growth in average daily trading volume resulted in an 81.5% YoY and 24.9% sequential growth respectively in broking revenues.

"The AMC business is showing traction despite a challenging environment. The broking business is expected to do well over FY21E as volumes continue to show strong traction, however, regulatory changes on an upfront collection of client margins pose as key risks," said Madhukar Ladha, analyst, HDFC Securities.

For other AMCs, market volatility and a decline in SIPs hit business in Q1.

The SIP book of Nippon Life India Asset Management Limited, one of the largest retail AMC, saw a decline to 700 crore in Q1FY21 from 810 crore in Q1FY20. However, the number of SIP accounts increased to 3.4 million from 3.2 million. "That said, cyclical headwinds still persist, with near zero net inflow in equities for Jun-20, SIPs declining for the system and heightened market volatility," said Nomura.

Among insurers, general insurance business fared better than peers. Large private life insurers’ growth was subdued with APE growth declining 30-44% driven by the covid-19 lockdown, said Credit Suisse.

Life insurers collections/originations were hit by the lockdown in April and started recovering from May.

According to Ladha, general insurers saw good business in Q1 despite vehicle sales drastically resulting in a much lower premium collection while renewals were also hit. However, lower claims because of fewer accidents due to mobility restrictions following lockdown helped general insurance companies.

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