The Hindu Business Line : Slowdown pushes broking firms to cut costs

Mumbai, July 28 With the Sensex dipping almost 40 per cent from its peak at the beginning of the year and volumes traded on the BSE dropping almost 20 per cent in the last six months, it is no surprise that the broking industry is facing a slowdown. The listed broking firms that have announced their first quarter results have either reported a marginal rise or a decline in their net profit.

Geojit’s consolidated net profit fell 41 per cent. Net profit at Edelweiss Capital was down 10 per cent. Indiabulls and JM Financial reported a dip in consolidated net profit of 4.1 per cent and 4.2 per cent respectively. Emkay Global Financial Services’ net profit plummeted 70 per cent. Motilal Oswal’s net profit rose by just 2.8 per cent.

Brokerage income at these firms has been hit badly. For example, the fee and commission revenues at Edelweiss Capital were down by around 80 per cent during the quarter.

“Side business”, is sort of a saving grace, said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

“Our mutual fund activities and commodities business have saved us from suffering bigger losses. Those who are largely in the business of distributing IPOs or dealing with retail clients are the worst hit,” said a Mumbai-based firm.

Most of the retail clients that got out of the market in January have still not come back, officials at broking firms said. The CEO of one of these firms said that the ones that were in serious trouble were those focusing on high volume trade and arbitrage.

With a drop in their profits, the brokerages have put on hold their expansion plans and are simply waiting for situation to improve. There are talks of some brokerages closing down branches and some even freezing their recruitment plans.

“As volumes have reduced substantially, the broking firms have to adjust to the new business environment which asks for reorganisation and rationalisation,” said Mr Munesh Khanna, Chairman, Anagram Securities.

Apart from these aspects, rental costs have been skyrocketing, said Mr Amit Rathi, Managing Director at Anand Rathi Securities. “Most broking firms do not want to be locked to this kind of expenditure, so they have to very selective in their future expansion plans. We are expanding selectively. Where we would open eight or nine branches earlier, we are opening only five or six branches,” added Mr Rathi.

New branches

Geojit Securities however, is sticking to its plan of opening 100 new branches in this year. But Mr C.J. George, Managing Director, Geojit Financial Services, said they would recruit relatively fewer people in the new branches than they would during a bull market.

“Business has gone down for every one in the broking industry and everyone’s expansion plans have been revised,” said the Chairman of a broking firm.