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Rajesh Abraham

Sensing the opportunity, public sector banks are also entering this segment. While IDBI Capital Markets, the broking arm of IDBI, is diversifying into retail broking business, another public sector major Bank of Baroda has announced plans to enter the equity broking business.

Mumbai , Jan. 15

BUOYED by booming stock markets and growing retail interest in equity and equity-related investments, Indian stock broking firms are on an expansion drive to increase their network into more cities and towns to lure clients into stock investments.

Having witnessed a high level of consolidation in the last 3-4 years, the domestic stock-broking houses could tap the IPO market to raise funds for their expansion, besides mergers and acquisitions.

"We are looking for opportunities for inorganic growth," said Mr Motilal Oswal, Chairman of Motilal Oswal Securities Ltd, which recently acquired a small Andhra Pradesh-based equity broking firm Gayatri Capital.

He said the broking business will continue the good run for at least two more years, thanks to the growing economy and good performance by the Indian corporate sector.

Motilal Oswal Securities plans to expand its network across the country from the present 600 outlets to 1,000 over the next 12 months.

Adds Mr Dinesh Thakkar, Managing Director, Angel Broking Ltd: "The best is yet to come."

Only about 1.1 to 2 per cent of the household income is routed into the stock markets while the stock markets have risen by 45 per cent in the last calendar.

"There is lot of good opportunity," Mr Thakkar said.

To cash in, Angel Broking is spending Rs 25 crore this year to open 15 full-fledged branches.

This is in addition to the 35 small offices that the company will be opening during the period. Angel Broking has already spent Rs 25 crore in 2005 for expansion.

Rush for IPOs: During 2005, broking firms including IL&FS Investsmart, India Infoline and Indiabulls tapped the markets through IPOs to raise funds for expansion.

This year will see several small and bigger players raising funds through the IPOs. The Kochi-based JRG Securities Ltd has already filed its draft prospectus with market regulator SEBI.

Stock exchange listed brokerages - JM Financial Securities, Geojit Financial Services, Fortis Securities, Prime Securities and the recently listed IL&FS Investsmart, India Infoline and Indiabulls - have seen big rise in their stock prices over the last 12-month period, mainly due to increased business and rising stock markets.

Foray by PSU banks: Sensing the opportunity, public sector banks are also entering this segment.

While IDBI Capital Markets, the broking arm of IDBI, is diversifying into retail broking business, another public sector major Bank of Baroda has announced plans to enter the equity broking business.

According to Mr Darshan Mehta, Chief Executive Officer of Anagram Stock Broking, which is expanding its branch network to 250 branches by March 2007 from the present 123 branches, the Indian stock broking business has emerged as a respected sector in the last 2-3 years.

"This was not the situation about five years back," Mr Mehta said. Defaults and scandals had tarnished the image of the broking community in 1990s.

Further, in the 1990s, the domestic equity markets had over 1,200 brokers compared to less than 100 brokers in South Korea.

"Ours was an over-brokered market," he points out.

Currently, the top 10 players including Kotak Securities, Karvy, Motilal Oswal, Anagram and ICICI Direct corner one fourth of the total equity market turnover.

"With the entry of several corporate players, the industry has attained size and scale," said Mr Mehta.

Cushioning against bear phase: Equity broking business being cyclical, many players are also entering new areas of activity such as commodity broking, distribution of mutual fund products and insurance schemes, to guard against fall in the stock markets.

In fact, firms like Indiabulls are also entering the real estate business.

"Most business have a business cycle and in this industry a bear phase in the markets will undoubtedly impact the brokerages. Having said that many of them are building revenue streams that can cushion this impact," said Dr S. Subramanian of Enam Financial Consultants Pvt Ltd.

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