The Hindu Business Line : Share broking makes good biz sense in India

Mumbai, May 17 Share broking has been an extremely profitable business in India in recent years, as the results of some of the listed firms show (see table).

“The last four-five years have been fantastic for the retail broking business with 60 to 70 per cent growth annually,” said Mr. Raamdeo Agrawal, Co-founder and Managing Director, Motilal Oswal Financial Services. “Right now only one per cent of the Indian population is investing in equities and, if in the next five years even if 5 per cent of the population invests, then 25 to 30 per cent growth is guaranteed.”

“But it’s a difficult and challenging business as it is tough to live up to the expectations of low net worth individuals,” said Mr Agrawal while reflecting on foreign banks like HSBC inheriting a domestic broking firm’s network to make a foray into the retail broking business.

The consolidated results of Indian broking firms are more indicative than their standalone financials of how these companies’ profitability has grown, said analysts. In the case of IL&FS, the securities broking business and its merchant banking business have been transferred to separate wholly owned subsidiaries.

In the case of Motilal Oswal, the consolidated figures (which are far higher than the standalone) include those of securities, investment advisory, venture capital advisory, commodity broking and other activities.

Broking commissions and fees are thin and it is volumes that bring revenues for any company that is purely in the broking business. But it is not just pure sharebroking activity which contributes to Indian broking companies’ financials. “Indian broking firms are also doing well because many of them also do financing activity for their clients through their subsidiaries; not to mention investment banking, merchant banking and wealth management,” said the head of a securities broking outfit of a large bank.

At Edelweiss, its wholesale financing business was a distinct contributor to revenues, accounting for Rs. 141 crore in 2007-2008, against Rs. 7 crore in the previous year.

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