Sitting in his sprawling office located in the far western suburb of Mumbai, Ashish Shah, the founder partner of Morpheus Financial Services is not very comfortable talking about the markets and his own business. The reason being that Ashish has been a sub-broker all through his life. He began in 2001 and has journeyed through some major cycles that the market has been through between then and now. In fact he forms a part of the breed, which has surfed through the dream run of the Indian stock market between 2003 and the early part of 2008. It was a time that set the cash registers ringing for stock brokers and investors alike. Both made huge money and riding on the back of the irrational exuberance that followed this seemingly secular Bull Run, many new players jumped into the fray to corner a pie of the Indian broking business.
The result was an overcrowding of players, which led to a massive under-cutting of prices in a bid to capture the market. Everything was all right as far as the market kept on going up. The volumes took care of the margins, which were shrinking to keep pace with the declining prices offered by the competitors. The real challenges are appearing now considering that the tide has turned over and the volumes have dried up in a sluggish market. The big hit, which came at the beginning of 2008 and halted the northward march of the markets, has had an impact on the fortunes of the broking industry.
The effect of the hit has been so strong that incomes have almost halved from what they used to be at the peak of the market. “In fact, at the current levels the incomes have come down 50 per cent from what it used to be even three months back.” says Ashish. Press him further and he candidly admits that the level of his income three months back was down by almost 50 per cent from what it was at the peak of the market. If this really is the situation on the ground level, is it not something to worry about?
So, What’s Ailing Brokers?Inflation, rising interest cost, a gloomy global economic scenario, the Lehmans of the world and the Greeks have all come to haunt the markets over the past three odd years. Not to say that the market has not recovered from where it went to in the aftermath of the first crisis that hit the Indian shores in early 2008. However, investor interest has taken a huge beating post 2008, thanks to the sudden and massive wealth erosion after a really long upward movement. The volumes have shrunk and this has created a huge strain on the margins of the broking companies. “The biggest challenge as of today is lower volumes, lower yields and lesser participation,” says B Gopkumar, Executive Vice President of Kotak Securities.
Gopkumar is not the only one who feels so. There is almost complete consensus within the industry on this point. “In today’s scenario, brokers are under considerable pressure mainly because of two reasons. First of all, the market has been moving sideways in the last 18 months or so. Brokers depend mainly on the revenues from the retail clients, who have not participated in the market for the last two years. Secondly, if you look at the composition of the trade, 70% of the market has become options. Another 15-20 per cent is becoming futures and the remaining 10 per cent is the cash market. As the delivery volumes shrink, brokerage also shrinks and so do the
« Start ‹ Prev |
12345678 |
Next › End »