Brokers facing tough time as investors keep off equity
Economic Times, 16/6/2011
India Infoline had rattled the brokerage industry with five-paisa commission, and record compensation for talent from CLSA which took its market value to Rs 10,200 crore during the bull run. Now, it is valued at Rs 2,460. That reflects the state of the broking industry.
Brokerages indulged in expanding mindlessly to reap the benefits of a growing India and paying astronomical salary to even beginners just to keep the business going. That’s returning to haunt and many are on the verge of laying off people, and some small ones and sub-brokers have shuttered.
There are some such as Barclays and Jefferies which are still hunting for talent, and there are those who have hired talent but are unable to squeeze profits out of them. "Times are tough for the broking industry as of now,” said Nirmal Jain , managing director at India Infoline.
"Broking is a cyclical business… business volumes, profits and such other operational metrics in broking are all linked to overall market conditions." India is the worst performing major market in Asia and many like Citigroup are underweight on India as inflation and high interest rate threaten to dent economic growth.
Trading volumes have slumped to a daily average of Rs 9,000 crore on the National Stock Exchange, from Rs 22,000 crore two years ago. On the Bombay Stock Exchange, turnover is down to Rs 2,600 crore from Rs 7,000 crore. The losses from initial public offerings, lack of economic reforms and soaring cost of funds have deterred traders from being active.
Brokerages in their eagerness to boost volumes cut commissions while costs have been rising, both for real estate and talent. "Retail investors are not showing any interest in equities; new investors are not coming in anymore," said Ashu Madan, chief operating officer of Religare Securities.
"This year is going to be a challenging year for sure." Motilal Oswal Financial Services’ net profit declined 53% in the January-March quarter over the December 2010 quarter. India Infoline’s net profit was down 30%, for Edelweiss Capital earnings fell 31% and Geojit BNP Financial Services’ tumbled 76%.
"The input costs like people and infrastructure are rising, and the overall revenue pool is not keeping pace, putting pressure on the industry,” said Anup Bagchi, managing director and chief executive at ICICI Securities . Motilal Oswal Securities , one of India’s largest stock brokers, has asked 100 employees to leave. These include staff from dealing, back office support staff and some relationship managers.
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