The Hindu Business Line : Brokerages feel the heat as volumes dry up

Mumbai, June 17 It is not business as usual for the brokerage houses, as the markets have continuously been falling in the past couple of months, affecting volumes and in turn business at these broking firms.

The benchmark index Sensex has fallen almost 23 per cent since January this year, while the trading volumes have fallen by more than 35 per cent since the same period.

“Volumes have gone down substantially in the past couple of months and if the volumes are getting affected, the broking income will definitely get affected, but it was more than expected as broking is a cyclical business,” said Mr Vinay Agrawal, Executive Director, Equities Broking, Angel Broking Ltd.

“The combined average daily volumes (BSE, NSE cash and NSE F&O segments) of the exchanges were over Rs 1-lakh crore in December and January; but now, they have reduced to almost Rs 60,000 crore,” said the head of sales of a broking firm.

The turnover on the National Stock Exchange dipped to a low of Rs 10,725.75 crore on Tuesday — lowest since February 22. “The fall in the income will generally tend to be in proportion to the fall in volumes,” said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

“With the index falling drastically since January, most of the firms have stopped funding to retail clients and this has also affected business in a big way,” said Mr Sanjay Someshwar, broker, Ventura Securities Ltd.

Falling volumes

“In the case of the derivatives segment, the retail investors seem to have almost disappeared and the volumes in this segment have almost halved,” he added. While the falling volumes have been a big blow to the business, the impact has been couched with many firms widening their reach by opening more branches, introducing more products or both.

“We have been expanding our businesses even though the expenses have gone up substantially, but the result of the branch expansion will only bear fruit after a couple of months, as it takes time to expand reach,” said Mr Agrawal. “Almost 85 per cent of our income is from retail business,” he added.

Angel Broking Ltd has opened around 25 new branches since March.

“The broking incomes of firms have fallen by around 40 per cent, but the brokerages have been going for expansion and diversification plans through mutual funds, commodities or insurance etc and making up for the losses,” said Mr C.J. George, Managing Director, Geojit Financial Services.

“Around 90 per cent of our client base is retail and although the brokerage income has come down drastically, the overall income has gone up in the past few months, due to distribution of mutual fund and insurance products,” said Mr Rakesh Goyal, Head-Distribution, Bonanza Portfolio Ltd.

Bigger firms

“We had around 450 branches till the end of last year, but now we have more than doubled the branches, so there is some insulation because of wider reach and increase in the number of branches also,” he added.

Although the fall in volumes has affected brokerages across the board, many feel that while the bigger firms are aggressively diversifying into other businesses to lessen the impact, the smaller ones might not be able to do so.