The Hindu Business Line : Broking firms feel the heat as trading volumes shrink

Those with high cost structure are the worst hit. Many are now looking for alternative avenues of income and resorting to cost-cutting measures, said the head of a broking firm.

If the trend continues, many sub-brokers and small traders may be driven out of business soon, he added.

The average daily turnover dipped by more than 40 per cent on the BSE in December-August period. The average daily turnover on BSE came down to Rs 4,996 crore in August 2008 from Rs 8,606 crore in December 2007.

On NSE too, the average daily turnover fell by nearly 40 per cent during the same period.

As on September-end, the Sensex has fallen by 38 per cent since its January highs.

“We are faced with a bleak festival season ahead,” said a sub-broker whose business has been hit badly in the past few months.

“Diwali aa rahi hai, par hamara toh diwala nikal gaya hai,” said a broker. (While Diwali is round the corner, we are left with nothing to celebrate.)

Broking is a cyclical business. When the market is down, broking business will take a hit. Those having a high cost structure will be the worst hit; so, this is the time you will have to cut costs, said Mr C.J. George, Managing Director, Geojit Financial Services.

Some broking firms are now diversifying into new businesses such as distribution of insurance and mutual fund products and focusing on portfolio management business.

They (brokers) are trying to woo high net worth individuals (HNIs) to increase business by giving them concessions which might violate SEBI rules, said an analyst.

For example, brokers are supposed to collect upfront margins before a transaction and full payment on T+2 basis but they are just taking a few shares as deposit from clients and allowing them to trade for a long period without collecting the money due on T+2 basis.

If at all they want to give a longer free period to client, the broker must register the client under its NBFC for a loan entry to offset a debit in cash account. But this is also waived by the brokers to keep the HNI clients in good mood and induce them to trade more, he said.

Shares of most broking firm are trading near their 52-week low.

However, diversified broking firms such as Centrum Capital could more or less survive the general fall in the market.