Emerging Face Of Broking Industry

Way back in 1995, entrepreneur Nirmal Jain had set up India Infoline Limited, an entity dedicated to research activities related to happening in Indian stock markets and also India Inc. Gradually, Jain and his core team made foray into stock broking and the quantum of his turnover started witnessing a huge rise over the years along with generating thousands of employments. Jain also came up with the idea of franchise model to reach out across the length and breadth of the country and making India Infoline a household name when it came to broking activities. Now known as IIFL Holdings Limited 21 years since he had started his journey on the Dalal Street, Jain has been dealing in housing finance, gold loan, loans for buying commercial vehicles, selling various financial products. For him and his team, broking is just one of the over a dozen core business activities they have presently. The Lower Parel headquarter of IIFL Holdings these days have been buzzing with activities and a visitor can well overhear jargons and talks related to asset management, loans, gold mortgage more than words hurled on pure broking activities. Size of Jain's company has been multiplied by many over last 10 years, number of employees has grown up substantially, reach and topline of IIFL Holdings also have been witnessing a sharp growth. IIFL Holdings is now one of the key players when it comes to private sector funding, finance and mortgage loans.
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Few metres away from IIFL, at Indiabulls headquarters, scenario is almost similar to what one witnesses at IIFL. At the Elphinstone Road office of once known as a pure broking player, Motilal Oswal talks are regularly taking place on NBFC activities as diversification is taking place there too. During last five to seven years, suddenly Indian broking firms are caught in a new fever-NBFC fever has certainly gripped all of them in a market where penetration of NBFCs are still very poor. In the office of V Vaidyanathan, Executive Chairman of Capital First Limited things are no different after Capital First stopped going with its broking business and decided to make funding its core business. Among all these key broking firms, Capital First enjoys the benefit of moving first and fast when it comes to the business of financing. Centrum Capital, yet another pure play broking house, soon will be the newest player in this game of aggressive diversification taken up by the broking firms in the country. The list is getting longer every alternate day.
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So what are the situations which forced these changes-shrinking income from brokerage, saturation in the transaction volume when it comes to stock trading, fierce competition, threats from smaller, newer mushrooming companies with lower cost on human resources and establishments, cyclical nature of the stock markets, newer and apparently safer financial products coming up as options for retail investors, among others.
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Says President of IIFL, Prashant Prabhakaran, "IIFL till 2009-10 had around 90 per cent of its income coming from capital markets but today, it is just 10 per cent and income from NBFC activities is pegged at 90 per cent. In the NBFC segment, there are actually 10 individual segments which have opened up and we have been witnessing income from NBFC growing faster. All brokers who grew from 2003-2008 diversified but still kept broking as a part of their total bouquet of services but the industry went through a lot of change in 2011-12. Algorithmic trading became a significant portion of this market, today nearly around 16-17 per cent of the market is driven by Algos. Then you have discount brokers which became part and parcel of this industry. The transformation and changes happening for good."
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Sameer Kamath, Group CFO of Motilal Oswal also has been witnessing the change of air in his shop. "In 2013, we have realised all these businesses generated free cash flows and these businesses do not require capital back in the business. There was a situation that you have free cash in hand and no opportunities in these businesses leading to the low ROE on the companies' financials. We focussed on segments such as affordable housing, loans worth ticket-size of Rs 10 lakhs, first home-buyers and therefore we formed our subsidiary Aspire Home Finance on the back of that philosophy. We have our own capital that is surplus cash flows to seed some of our asset management products. While we continue to run our broking activities, we will surely see more opportunities coming up in the context of NBFC activities."
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Angel Broking which had started its journey in 1987, however, preferred to go slow when it comes to diversification. Says Vinay Agarwal, Chief Executive Officer, "In our case, focus would remain to continue on retail investors. We are also kind of planning and thinking to launch low-ticket home loans etc at a later stage."

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All of them believe in one thing for sure-things started changing fast since 2008-09 and most of the players realised, they need to diversify and bring in newer products to manage their already accumulated huge manpower, establishment costs and also to hike profitability. The NBFC space was ready but during those days, there had been hardly any takers. So they found a virgin territory to exploit and the beeline started from there and was still continuing. "Having an in-house NBFC is definitely a must in today's date. All of us are expanding our NBFC base at an aggressive pace," says Nikhil Khandelwal, MD of Systematix Shares & Stocks. Sandeep Nayak, CEO of Centrum Broking believes, "We are going to launch immediately the housing finance business which is focused at tier-2 markets. We are not going to lend in Mumbai and Delhi but we will be focussed in places like Vadodara, Indore etc. In the tier-2 cities of India where probably we will get a higher pricing and we are also starting a NBFC to look at SME sector which is under-serviced in this country." Centrum Capital, listed in BSE is certainly going to witness a surge considering the company's plans to get into the NBFC and housing finance sectors.

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The bigger question here comes whether these top broking firms have then lowered their focus on the core business and concentred on NBFC-they all say no to it. And what happens when the NBFC space is joined by too many players. Prabhakaran of IIFL says, "Broking continues for us. But NBFC activities will also remain in focus. The NBFC business per se is still an under-serviced industry in India. You still have gaps for NBFCs to go in and fill in. For instance, when IIFL entered into the gold loan space, there were only two large players. We noticed a huge gap which we could fill immediately as these two players were largely southern India based . Similarly, there is space available across country for others in the NBFC segment. NBFC does not mean lending money to individuals only but also there is a SME line that is available." Nayak of Centrum also believes similar as he says, "The opportunities exist because today if you see one of the key constituents of the financial sector which is the PSBs which command a big share of the market is having to go slow because of its own asset quality problems and that allows us the luxury of being able to get into the market and capture our share of the market because one of your large segment competitors have had their problems to deal with. So there is a huge amount of potential in this segment which has to be tapped by private sector banks and NBFCs." Rajeev Ranjan Singh, VP of Karvy Stock Broking has been witnessing this changing face of Indian broking firms very closely. He says, "These all are in line with client expectations of all need-based services from a single advisor. Diversifying products also help the company to retain their clients instead of clients buying NBFC services from the competitors."

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But then what happens to the smaller broking firms and discount brokers-will they also in near future opt for diversification and eventually jump into the NBFC and related spaces. Or will lower and almost no brokerage charged on their clients remain their USPs-we asked Nikhil Kamath, Co-Founder of Zerodha and this is what he says, "discount brokers can no longer just compete on price. The race is heating up on the technology and services which each of these brokers offer . This is where the next round of consolidation is more likely as users move towards better technology solutions." He makes it clear that discount brokers and smaller players will stick to pure broking business as of now and spend more on technology related services to their clients. Chirag Modi of CM Investments, says, "Small broking firms to pay attention on various other services also linked with financial market such as distribution of mutual fund products, life and general insurance policies and PMS services." Modi's broking firm has been expanding aggressively across India having main focus on tier-2 and tier-3 cities. Khandelwal of Systematix has a different opinion however. He says, "No financial service businesses, big or small can survive without diversification as the Indian broking sector is overcrowded and little or no differentiations exist in the regular broking business. Indian investor community does not value research highly as in the western countries which leads to companies looking for other allied business to make profits." Agarwal of Angel Broking says, "Small broking houses are surrendering their licences and becoming our franchisees. The reasons for the same are huge investment needed in technology, giving out innovative products, compliance cost, requirement from customers for good products, advisory etc. In fact, if opportunities come in our way, we are open to acquire retail broking business and thus grow further in future."

Looking at the way discount brokers like Zerodha or CM Investments, SAS Online making it big in these days when their big brothers like IIFL, Centrum, Indiabulls, Motilal Oswal are focussing a lot on NBFC activities, will the future be in the hands of discount brokers-the big question arises here. Zerodha's Kamath says, "Cost is the biggest advantage when it comes to discount brokers, especially for traders who trade more frequently, discount brokers should generally be the way to go." Modi of CM Investments say , "Smaller broking firms have their edges over the bigger players when it comes to handling frequent traders, most of whom are based in smaller cities and towns in Gujarat. So we do not see any chances of smaller players being eaten up by the bigger fishes. Everyone has his or her own choice-so even investors choose their brokers according to their needs, money to spend on brokerage etc."

IIFL's Prabhakaran has his own take on this. He says, "Zerodha is going to occupy a space as it is the largest player in that particular space even as with money other players also are coming into that space. There will be enough coming up and building up their credentials of giving you platform , no advice but lowest rate possible." Being at the helm of IIFL Holdings broking business, Prabhakaran strongly believes technological advancement and spending on technology are the two factors which may decide the fate of broking houses in India, bigger and smaller. "All that I am telling you about is working technology with my internet and my mobile platforms. We have heightened our technology services and so you may find our mobile platform being the best in the country when it comes to trading, research and education on stocks and stock markets. And every version you see changing, you will end up finding a new feature getting added into the system thus giving you advantages regularly." Kamat of Motilal Oswal says, "Technology awareness is picking up fast-mobile trading platforms, trade through various apps etc. were not available during the last bull run but things have changed now. If you have to do business in future, you must evolve according to the needs of the clients and technology too." Kedarnath Udiyavar, President of Intellect Design says, "Most of the processed in broking industry will be automated. We have algorithmic trading, we have HFT where the algo is running in the system and they are making decisions and selling high depending on the market analytics. But when it comes to broking , somebody has to decide the trade especially when it comes to institutional investment, more and more algo trading will be used. I would say most of the process will get automated."

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Bigger players including IIFL, Indiabulls, Motilal Oswal, Karvy these days have been spending a significant chunk of money on technological upgradation of their products only to ensure clients are regularly updated with regular technological upgradation . "Besides giving our clients a robust trading platform, we understand that it is not possible for clients to stay rooted to their systems. That is why we have invested heavily in development of mobile apps where we keep on updating the features," says Singh of Karvy. Agarwal of Angel says, "The cities where we don't have branches and those who want to open account directly and using technology, we are now able to do that. We are opening clients' account using digital KYC process and this is really picking up."

So what is going to be the future, we ask. Kamath of Motilal Oswal says, "Direct equity participation is so far less in this country. The participation is only increasing through equity funds and other mutual fund products. I think financial products from the equity and other such allied products which can help channelise savings into meaningful rather than dead assets." Karvy's Singh believes with little differentiation in their products many Indian companies are facing substantial competitive stress with the concept of discount brokerages; flat brokerage and various other offers which have been eating up the market share of all brokers and have affected each broker differently. "In addition to declining margins, option trading is increasing in terms of proportion of overall trade. Also recent market conditions have impacted investors' sentiments towards certain extent. So many brokers see mergers and acquisitions as means for enhancing revenue and saving cost," added he. CEO of Centrum Broking also believes the space is evolving and there are lots of disruptions happening in this segment. "I would imagine the use of technology within this space is going to be a hygienic factor and companies which are able to integrate that very well into their existing systems, will be the winners of tomorrow," said Nayak.

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All said and done-it is clear now, pure broking space in India is going to witness further consolidation where the best among the discount brokers are going to survive and the top ones among the all-frill broking firms to have the same fate. For rest, things may remain disruptive and dampening unless they start investing heavily on technological upgradation processes, diversifications and offering their clients a larger product pool. The space here onwards is going to be further interesting to watch out for all of us.

One of the engines of growth for IIFL will be its NBFC ops

 Nirmal Jain, Founder & Chairman, IIFL Group

Where does IIFL go from here when it comes to its activities beyond broking ?

We are a large diversified retail financial services company with presence in multiple business segments including consumer finance or non-banking finance, wealth management, broking and distribution of life insurance, mutual funds etc. In the last five-seven years, we have successfully transformed the business from a broking-led model to a non-banking finance company (NBFC) and wealth management-led model. Going ahead, we believe the engines of growth for our organisation will be NBFC and wealth management. Our NBFC loan AUM is about Rs 20,000 crores (one of the fastest growing) while IIFL Wealth Management is the largest in India with over $12 billion worth of assets under management and advise .

 Nirmal Jain, Founder & Chairman, IIFL Group

Where does IIFL go from here when it comes to its activities beyond broking ?

We are a large diversified retail financial services company with presence in multiple business segments including consumer finance or non-banking finance, wealth management, broking and distribution of life insurance, mutual funds etc. In the last five-seven years, we have successfully transformed the business from a broking-led model to a non-banking finance company (NBFC) and wealth management-led model. Going ahead, we believe the engines of growth for our organisation will be NBFC and wealth management. Our NBFC loan AUM is about Rs 20,000 crores (one of the fastest growing) while IIFL Wealth Management is the largest in India with over $12 billion worth of assets under management and advise .

Will IIFL make itself a full-fledged NBFC in next five to ten years? What will be its biz model with the mention of focus areas?

NBFC is a dominant part of our group today. It accounts for almost 70 per cent of our top-line and bottom-line . It has been growing steadily with the high-quality book. Our key product lines have been home loans, loans against property, commercial vehicles, SME loans and gold loans. Within these, the focus for growth will be small-ticket SME loans as well as affordable housing and home loans. Recently, UK's CDC has proposed to invest about â ?¹1,000 crores in our NBFC arm for about 15% equity stake. The fund will be used as a long-term capital equity fund and will be used for sustaining growth as the NBFC business needs capital for growth.

How does IIFL plan to exploit the under-exploited NBFC segment in India?

We are already widely present in unbanked and underserved areas across India. The CDC capital infusion will be boosting our network expansion further. We see enormous demand from the underserved consumers and expect it as a huge opportunity for NBFCs like us. 
NBFC is a dominant part of our group today. It accounts for almost 70 per cent of our top-line and bottom-line . It has been growing steadily with the high-quality book. Our key product lines have been home loans, loans against property, commercial vehicles, SME loans and gold loans. Within these, the focus for growth will be small-ticket SME loans as well as affordable housing and home loans. Recently, UK's CDC has proposed to invest about Rs.1,000 crores in our NBFC arm for about 15% equity stake. The fund will be used as a long-term capital equity fund and will be used for sustaining growth as the NBFC business needs capital for growth.

How does IIFL plan to exploit the under-exploited NBFC segment in India?

We are already widely present in unbanked and underserved areas across India. The CDC capital infusion will be boosting our network expansion further. We see enormous demand from the underserved consumers and expect it as a huge opportunity for NBFCs like us. 

Nikhil Kamath, Co-Founder & Head of Trading, Zerodha

How is a discount brokerage firm different from a full-service brokerage house?

A discount brokerage is a business that charges clients significantly lower fees than a traditional brokerage firm but without providing financial advice. Unlike full-service brokers, discount brokers do not provide personal consultations, advice, research, tax planning etc. Innovation in technology has now allowed discount brokers to offer some of these services; we see the line between discount and full-service brokers disappearing within the next 5 years.

How is an implementation of GST and pay commission awards going to help discount broking business in the country?

The implementation of GST could simplify norms and will bring a new set of investors into the markets. It will help aid penetration in the financial sector; this, in turn, would aid discount brokers as well.

Do we see Zerodha aggressively expand its footprints globally especially into important financial centres?

Zerodha is looking at a whole host of international markets to offer broking as a service; we should have our services on offer in a few South East Asian markets, to begin with.

In the past few years, we have seen discount broking concept picking up rapidly in India. How is the future looking to you in terms of broking industry as a whole both online & offline?

With access to the internet and as traders are evolving, younger users who prefer the online model are entering the trading space, we believe there will be a gradual waning of the offline business going ahead.

Chirag Modi, Founder and MD of CM Investments

How has the broking industry evolved from a pure play brokerage firm to an umbrella of financial services provider?

Dynamism of mix basket of financial inclusion is the key necessity of today. Being brokerage house to cover services of broking of shares, mutual funds, PMI services, advisory role in financial investment services, underwriters etc. Evolved him to an umbrella of financial service provider.

What are the challenges being faced by the smaller entities and the newer ones in this segment?

Today broking market is highly competitive & controlled by big bull share brokers having wide network with pan India presence. Another important factor is substantial investment is required in this sector to compete with other players.

How are small brokers competing with big players in this highly competitive broking industry?

As I have told, today boking market is highly competitive & controlled by big bull share brokers. In many cases small brokers are being sub brokers of large brokerage house. Some other players are working with their own track record & relations with investors.

Do you think Indian broking sector will finally turn into 100 per cent mechanised sector where human touches will be almost zero and thus, coping up with the rising costs towards human resources and shrinked margins?

I can't say at time abt this assumption. Though it is true rising cost in future shrinked margins & create more competition.

Do you think being listed on the mainboard or even SME platform can be an option for the smaller broking firms to raise capital and survive?

Raising of capital from today's market is not an easy issue. SME platform is not equivalent and substitute. Raising of capital to be listed from main board capital to structure strategy of survive in future.

What will be the road ahead for such broking firms in next five years from now?

Looking the current scenario and political stability, this is a good road map for broking firms. Governments continued effort to bring foreign investment has showing good shine of scope and will continue in future.

Diversification among Industry players

Indiabulls (Real Estate, Infrastructure, Housing Finance and Securities)

IIFL Holdings (Financing, Housing Finance, Wealth Management, Financial Products Distribution, Financial Advisory & Broking, Asset Management, Institutional Equities & Investment Banking, Realty & Property Advisory Services)

Motilal Oswal Financial Services (Asset Management & Advisory, Equity Broking & Other related activities, Financing & Other activities, Fund Based Activities, Home Finance, Investment Banking)

JM Financials (Alternative Asset Management, Asset Management, Financial Services Activity, Investment Banking and Securities Business, Securities Funding and Fund Based Activities)

Edelweiss Financial Services (Agency Business, Capital Based Business, Life Insurance

Centrum Capital (Wealth, Investment Banking, Forex Tours Visa, Stock Broking, Insurance, Loans)

Reliance Capital (Asset Management, Commercial Finance, Consumer Finance, Finance & Investments, General Insurance)

Religare Enterprises (AMC JV, Broking Related Activity, E-Governance, Financial Advisory Services, Investment and Finance Activities, Life Insurance JV)

Broking business will continue to remain profitable

Vinay Agrawal, CEO , Angel Broking

How a full service broking house like Angel is different from something like a discount broker?

We are a full service discount broking service provider. There are five factors which can able to differentiate us from other brokers as advisory , leverage or funding i.e. provide margins to customers, giving relationship management support, physical presence across 200 plus cities, various offline and online variant training programmes for customers.

How broking industry in the country is changing with the emergence of growing middle class and ever increasing technology footprint?

More people are wanting to get in to other asset classes. In our case, new customer addition is almost double from the base which was 18 months back. This clearly reflects how people are changing and how more and more people wanting to open accounts to this investment mode. To talk about technology, earlier there were B to B to B to C segments and we have large number of franchisees counting at 48,000. Even in B to C segment, we get our clients on board and we are finding it as an increasing trend.

Is brokerage industry a profitable bet at this point of time given lower margins from the capital market business?

Absolutely, broking business is profitable and will remain to be profitable in coming time. You must look at the scale on which we are working and not just thin margins. We used to have about two per cent margins when few hundreds of volumes used to be recorded. Now, it has been going up few lakhs to few crores. If you look at the developed markets and compare with our markets, then volumes are going up by multi-folds from here. So small yield does not impact further. Look at couple of other factors, during last one decade, people have seen huge opportunities as interest rates were very high and people tend to save in fixed deposits. Secondly people used to invest in gold but last couple of years they have realised that gold is a commodity and may not move as it has risen so far. Third reason is that real estate investment. Lot of people do not want to pay taxes, that's why there were major investments in gold and real estate. Lot of people invest their black money into gold and real estate. But in stock market there is no chance of black money investment due to strict regulations of SEBI and PAN mandates. With the recent initiatives from government, it is extremely difficult to deploy black money into businesses.

The domestic retail inflows in mutual funds are high in second year in a row. The scale of participants in the stock markets is completely changing.

Why industry itself is changing?

Most of the players in broking industry were hit after 2008 and experienced lull period. During that whole period, nothing great was experienced by the industry players. Some of the players started operations in NBFC areas and some of them clicked.

Currently we are witnessing a bull market scenario in the country. How has been the retail mood and participation in general?

That is an uptick. The client acquisition also has gone up by more than double. We also have witnessed client activity ratios i.e. how many clients trade every day or monthly or quarterly compared to total base. There was about 15 to 25 per cent increase in the activity ratio. The customer activation also has gone up by more than 100 per cent . There is traction which is very small now but it can grow in coming time.

Motilal Oswal: Sameer Kamath, Group CFO

Can you give us broad idea about how broking industry has evolved since 90's till date?

The broking business is a very old business that way but industry has evolved a very broad way. The advent of DAMT and NSE had been to landmarked, the things that explored the opportunities and the participation. So if you see last 15 years especially when demat accounts coming with an online and how derivatives coming in and volumes in the industry is quite exploded. Meanwhile cash volumes remain little muted. Through the entire cycle I have seen one thing that during good time retail participation always increases and Cycle brings that challenges along with opportunities.

If you see from year 2000, there is consolidation happening in the industry. i.e. consolidation means during the good times, some large players continue to gain their market share and that's why largely because of brand, presence and technology. Some of these factors which are contributing to make some of the large layers to become bigger. If you see 2004, top 100 players have pie of 59 per cent of market share and outside of the top 100 players which not so large players controlled 41 per cent of market share before the actual bull run was started.

In 2008, when bull run quite come to an end the out-side of top 100 players of markets market share dropped to 27 per cent . Now, that year major players which had about 59 per cent of market share gone up to almost 75 per cent of the market. After that, if you have seen during year 2008 to 2013 market remained flat after the downturn. Now see the last two years what is happened again from 27 per cent market share declined to 18 per cent . Now clearly what is happening is that, lot of incremental business has come.

What need to be have to be successful broker in this era is

1 you need to have pan-India presence, lot of hand holding should be there to tap retails. Many people opt for Ike gold and real estate investments rather than direct equity which is actually have ability to beat inflation.

2.mobile penetration in India is so large that what online could not able to big way may be mobile can do in this cycle.

3.Having a right technology interface which is customize to the capturing the needs of the customers and helping them to understand the equities in a simple manner across the whole value chain like right from investing, reaching out to clients, post recommendation tracking and managing clients' portfolios and advise them what to remain invest or not.

Presence to help customers come in, technology along with competent person can help both equity markets. The brokers which will able to do hat sufficiently and successfully will gather more market share in coming 4-5 years.

Brokerage industry currently is going through phase of cut throat competition and wafer thin margins with the advent of discount brokers. What is your view on this?

I think in broking industry, one has to always focus on how your cost as tight as possible, so the margins for a broker is on dependent on how lean and how effective your mange your costs in good times and bad times. coming to specifically to discount brokers, globally also discount brokers which provide seamless experience at a low cost, super market kind of broker who offer everything under one technology platform and there are full service firms who offers advice, research also successful. The market is big enough and evolving there is enough space to choose a brokerage platform depending upon client's personal need. Broking firms need to be segmenting your customers. If you have proper below cost structure and right value proposition, then there are enough margins to me made and make money for clients. There are only 2.5 crore to 3 crore demat accounts and out of that only 40 to 50 lakhs are active. If you understand custom needs and segment them properly then market place is big enough to do a business.

In developed countries, about 70 per cent capital markets transactions happens through discount brokers. Are you ready to change your business model to take on the aggressive discount brokers who are growing at a rampant pace?

I think every firm has to stick to its core competence and we have chosen to do that. And we see enough opportunity in the chosen segment which is research, advice, Pan-India presence through entrepreneur leg franchising model. One area where significant investment in last 3 to 4 years have been technology. We are making research and advisory can be further strengthen by making advise enable to technology. Enabling to delivering through Robo-advisors so that it can reach message in a cost heavy structure. So The company remains to do with its model.

As we have seen Motilal Oswal diversify business and thereby managing risk and increasing revenue base. Do we see Motilal Oswal push aggressively into NBFC business its revenue verticals which were not touched by you?

Right now we are focusing on businesses which we have created. Even broking business is changing as far as technology leveraging existing client base, distributing financial products. Right now, company's focus is on to make its seven businesses big as much.

In this new era of payment banks and digital wallets, will the broking companies go for tie-ups via cross selling of financial products and services?

As of now we have large number of clients on technology side. There will be win-win kind of situation of financial companies and payment banks in coming future. We have about more than 40 per cent of business comes from online plus mobile. We will look at these opportunities opportunistically. we are working on the large kind of financial products from our product portfolio which are under penetrated.

What are big player like Motilal Oswal is doing in terms of imparting financial literacy amongst the common masses especially the people who have kept out of capital markets?

We conduct lot of financial inclusion and financial awareness seminars, workshops. We have created our separate school School for Trading & Investing Research (STIR). We have presence 2500 outlets across 600 cities in India and regularly conduct workshops.

Technology Siddhant Jain, COO of SAS Online

How important a role technology will play in shaping the future of Broking industry in the country
There is a quiet revolution happening in the broking industry since the last 2-3 years with the advent of online discount brokers like SAS Online, who leverage technology to provide excellent customer service with utmost transparency and the lowest brokerage. For starters, technology provides unparalleled reach - SAS has clients across 700+ cities who trade via an online trading software or on the go through a mobile app. Moreover, using technology, we design for trust - a trader can transfer funds instantly into his trading account with SAS via a payment gateway and due to API integration, the funds are immediately reflected in the trading software, ready to use. Similarly in the case of payout, the trader places an online request and his money automatically comes back to his bank account the same day. Technology has already started disrupting traditional broking models and will continue to do so. 

Rajiv Ranjan Singh, Vice President & Business Head, Karvy Stock Broking.

What are you doing to penetrate your broking business in tier 2 and tier 3 cities?

In the past five years, many tier 2 cities in India have surpassed the million-dollar mark of investments. A recent report by the Smart City Council states that 18 new cities have emerged to have multi-million dollar foreign investments. Besides witnessing economic growth, tier 2 cities are soon becoming the most favored destinations for investment. Several tier 2 cities have economic growth rates as high as 40%, is comparable to India's metros such as Mumbai and Kolkata. Likewise, the sales of luxury goods, in the tier 2 and 3 cities have already surpassed the metros indicating high disposable incomes.

Over 10 years ago Karvy had taken a strategic decision to develop its business in the tier 2 and tier 3 markets and since then has consciously stuck with this game plan. We have over 270 offices mostly in small towns and operate at a low key in the large Metros.

As per capita income has increased in tier 2 and tier 3 cities, so has the propensity for investment. Karvy as a brand has strong presence with its registry business touching the lives of more than 70 Million and through its various government projects including PAN & AADHAR projects, making Karvy as a well known brand. For deeper penetration into these cities, we invite people to join us in our growth story by way of direct sales campaigns and building a network of business partners.

Investment in stocks and equities is not as popular in these cities as compared to mutual funds, insurance and other debt products. Karvy has taken the initiative to raise financial awareness among masses and also educate and empower them towards investment in equity through its Investor Awareness Programs (IAPs).

As broking business is facing the brunt of fierce competition, how you are preparing yourself for the onslaught? Do you see consolidation in the offing?

We agree that the level of competition has gone up in recent times. However, there is still a huge untapped potential in the market as the penetration of demat accounts is still low in the country. As per reports there are only 2% of the population who have demat accounts as compared to 40% having bank accounts and 5% Mutual fund investors. This gives us ample scope to tap the unexplored horizons.

We are a trusted name among other brokers in the country. With over two decades of experience in broking , and our huge presence, our stellar presence in registry business arm, with the vast network of sales offices & touch points, we provide customized investment solutions to corporate, institutions and individual investors.

The obvious answer to mitigating this risk is to expand the market and get many new investors into the equity fold. India is young and we believe if the young don't take the risks who will? Karvy being a leading broking company has already embarked on this mission of spreading the awareness of stock market investments and expanding the investor base.

Can you please elaborate on how you are spreading capital market awareness amongst the untapped mass especially small towns and fringe villages?

Karvy conducts frequent IAP programs in different locations including Tier 2 & Tier 3 Cities in its endeavour to educate and create awareness of investment opportunities available. It allows investors to directly interact with market experts from different sectors to know more about various investment options available in stock market.

Our most recent initiatives in this field is SEAL (Student Engagement & Applied Learning) as a flagship campus cadre programme for students. It is comprehensive two-day financial workshop for students to provide them with real time experience and industry practices where industry experts give an overview on the basics of financial markets. We conduct this programme with major emphasis on Tier 2 & Tier 3 cities where scope of financial awareness is felt more.

Sandeep Nayak ,ED & CEO centrum broking

The Plate Is Large And Continuously Expanding
How's Centrum planning to further diversify itself when it comes to focussing on other allied businesses other than pure broking?

If you look at it, Centrum as a financial services house is already offering a diversified platform and if you look at it we are very closely integrated, we are one of the top wealth managers in the country today. Equity is an asset class which is one part of the wealth of an individual. So when you look at a customer's wallet there is a pie for equities, pie for fixed income and there is also a pie for alternative investments. If you look at it-when we started out itself, we had looked at equity as one part of the wealth of an individual. We opted for allied services like an asset allocation, portfolio management services, if you look at it it's an entire proposition to manage the wealth of an individual. We are also offering people with estate planning and succession planning for that we have even hired a lawyer. There are various allied services along with broking are offered to an individual. In terms of us as a company, the proposition is pretty large.

More Consolidations To Take Place Hereafter
Margins Have Shrunk And So Is Business

Brokerage industry operates at thin margins these days due to fierce competitions.

a)Has the fierce cut on brokerage been forcing the smaller, newer players to get ready for tighter margins?

Yes - The industry margins have shrunk significantly and now in low teens or high single digits.

b) What could be then the survival mantra?

Always advise your clients on fundamentals of businesses rather than getting carried away by market knowledge / rumours, diversify your business to get more out of the same corporate or investor, target as much foreign institutional clients as possible - which contribute over 50% to the volumes of our capital markets and also pay good brokerage rates. 

In a highly competitive environment like emerging discount brokers and big broking players, how are you preparing yourself to differentiate from others?

We are positioning Systematix as a deep research focused, idea driven brokerage house and have been able to continuously bring fresh fundamentally strong businesses to our clients, and advising them to stay invested in the businesses from at least a 12-18 months' period.

We have seen huge success emanating from this strategy and it has also led to strong stickiness of clients with us.

Being low volumes in capital market in recent couple of years, how you are anticipating overall broking business?

Brokerage industry is going to undergo fast consolidation every 3-4 years with 5-7 players shutting shop or merging into some of their peers, owing to cost pressures.

Do you see opportunity to acquire broking businesses in coming time? Can you state consolidation among unorganised space of the broking industry?

Consolidation would mostly be driven by acquisition / merger of firms. While there are multiple acquisition targets in Indian markets, we are looking to acquire brokerages which have a strong pedigree in the foreign institutions' business.

Karthik Srinivasan , Sr.VP ,Financial Sector Ratings,ICRA Ltd
In near future, do you expect consolidation to take place in the broking industry? 

Consolidation is inevitable in many businesses including broking. The change in trading pattern with reduction in cash trades and increase in derivatives over the past few years coupled with a competitive environment have led to sharp fall in brokerage yields and consequently on revenue levels. Many players have closed down operations as they have not been able to realign their business model and manage costs related to business and also due to higher levels of regulatory compliance.

With differences in valuation levels, we are more likely to see consolidation by way of smaller and weaker players exiting the business rather than a conventional consolidation through mergers and acquisitions.
Embrace New Technologies To Retain Clients

What are the new technological capability being developed for broking Industry?

If you take past 4-5 years back there was lot of offline trading, people use to trade through the offline trading and through brokers, probably today also large transactions will happen through offline mode which could be paid by cheque and things like that, but now the big change is online trading. Earlier only ICICI bank and HDFC bank were providing these facilities. Now online trading is predominant, the big change to mind is that the investor community has grown considerably because people had found it easier to start trading directly through ICICI bank or even from brokerage firms like Trade Smart Online.

Another big change to my mind is we don't necessarily go to broker-you can call a service sector and you can also do App based trading. App based trading has made it lot easier and seamless. In this process the need for bricks and mortar facilitates form trading is gone away. Other than funding client or if someone who needs funding may only go to brick and mortar brokers. Bulk of the people who trade today, they don't have any need for a brick and mortar branch.

What are the newer technological capabilities being developed for the broking industries?

I would say the large brokers are benefited but, when we talk about smaller brokers they may have got affected in this process, because today there is more of a level change, the ability to trade on all these platforms that I talked about, is more of the level played. For instance, with all the demat account and bank account you can seamlessly trade when compared to all the old days when you have to trade it was a tedious job but thats no longer is the case.

The large brokers are benefited as both BSE and NSE is highly technologically savvy and so brokers have no choice to start using some of those technology. Also the reach to the investor community has improved considerably, earlier we could not reach the investor community. Today the investor community is technology savvy, brokers are technologically equipped and both of them come together thereby creating a larger investor community.

Launching new products become easier as you cloud launch on the digital portal. By using technology like Cloud, the cost of technology infrastructure comes down. For lot of brokers if they would invest in the right technology they would be benefited by reduced cost. Also we can have value added services that you can make available to clients. You can have analytics, advanced analytics, advisory services-all that potentially supported by underlying supported technologies like big data technology that analysis investor behaviour, which can even tell what are the investors looking at and what are the risks involved thereby helping in better investor understanding.

Technology in broking firm in compiling with regulated holder.

Today every transaction has to have a PAN number and every transaction is supported by KYP and also got the feature of E-KYP and so easily some of these things can be done. Through 3 things are significant:
• Technology is helping the brokerage firms from the point that the investor is clear, somebody who approved for trading 
• Helping the broking firm to maintain transactions history, audit trade. Today we can get digitally signed contract notes instead of paper contract notes. We can also track the authenticity of all the transactions to make sure that there is no tempering of transaction data and all these things are enabled by technology. 
• When we have diagnostic analytics or predictive analytics, it makes things easier to understand for the customers. You can also make sure that you are dealing with authentic customers or investors and have the ability to comply with regulations.