ICICI Securities falls as CLSA downgrades rating, earnings view

Shares of ICICI Securities fell on July 6 after brokerage firm CLSA India downgraded its rating on the stock to ‘underperform’ from ‘outperform’ earlier citing reducing volumes in the cash market.

The brokerage has also slashed its price target for the stock by 37.5 percent to Rs 450 per share that values the company at 12 times its 2023-24 forecasted earnings.

“Over the past six months, we have been highlighting the dichotomy in trading volumes, with cash equity trading volumes being flat-to-marginally down while futures and options (F&O) volumes consistently rising,” CLSA said in a note.

The brokerage believes that such a scenario is particularly negative for traditional brokerages like ICICI Securities as they depend on cash market volumes to drive income.

The decline in cash market volumes have been driven by multiple factors including recent tightening of margin requirements for intra-day leverage-based trades by the Securities and Exchange Board of India as well as the downturn in market returns since October 2021.

CLSA has cut its estimates for ICICI Securities revenues by 8-11 percent for the next three years due to lower broking and allied services income resulting in a 13-18 percent reduction in earnings per share estimates.

CLSA India said that its earnings forecast for the ICICI Bank-backed brokerage firm is now 15-20 percent below Street’s estimate, making it one of the most bearish on the counter.

At 9:55 am, shares of ICICI Securities were down 1.8 percent at Rs 415.95 on the National Stock Exchange.

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