The Hindu Business Line : Falling volumes hit broking cos

Mumbai, July 14 The first quarter financial results of three broking firms indicate that the broking business is experiencing a slump, something expected in a bearish market.

“In general, broking incomes have come down drastically as the markets have fallen heavily,” said Mr Rahul Jain, Vice-President, Head-India Sales, Prabhudas Liladher Pvt Ltd.

Geojit Financial Services, has reported a 55 per cent drop in its standalone net profit at Rs 4.93 crore, against Rs 10.96 crore in the same year-ago quarter. Its consolidated net profit fell 41.3 per cent, to Rs 7.1 crore.

The consolidated net profit of Edelweiss Capital for the same period rose 52 per cent to Rs 63.78 crore.

Motilal Oswal Financial Services Ltd’s standalone net profit rose 3 per cent year-on-year; and its consolidated net profit rose to Rs 26.20 crore from Rs 25.48 crore.

The fee and commission revenues of Edelweiss Capital were down by around 80 per cent in the quarter, compared with the immediate previous quarter; the commission revenues were up by around 9 per cent over the same period.

Treasury, Arbitrage and Trading Revenues were Rs 70.25 crore, up from 44.60 crore.

In case of Geojit Finanical Services, ‘broking and financial services’ is the only reportable segment. Its total income has fallen by 26 per cent to Rs 39.5 crore in the quarter ended June 30 of the current financial year compared with fourth quarter of the previous fiscal.

The business of the broking firms have been affected due to falling volumes in the market, said market men.

Revenue

In case of Motilal Oswal, the revenue from equity broking and other related activities has dropped by around 30 per cent to Rs 106.62 crore in the quarter ended June 30, 2008 (from immediate previous quarter) whereas the income in the same segment has increased by around seven per cent compared with the same quarter a year ago.

The revenue from financial activity grew by 470 per cent from Rs 4.37 crore in the first quarter in the previous financial year to Rs 24.95 crore in the quarter ended June 30, 2008. The investment banking revenue grew by around 12 per cent to Rs 18.25 crore in the quarter ended June 30, 2008 compared with the same quarter a year ago.

If the broking firms, which have other streams of incomes such as from consumer finance, insurance broking or internet banking, have managed to earn high incomes in these segments, then they might not face the hit badly, said Mr Jain.

“The income from broking of most of these firms will have fallen in the past six months and so many broking firms have started to focus on fee-based and fund-based business,” said the head of research of a broking firm.

“Many broking firms who diversify into corporate finance and investment banking or into fund based business which includes margin funding or arbitrage business will be able to mitigate their losses,” he added.

The stock price of most broking firms have fallen substantially in the past one month, with Edelweiss Capital down by around 20.59 per cent, Motilal Oswal Financial Services Ltd by 26.02 per cent, and Geojit Financial Services Ltd by 20.24 per cent.