The Hindu Business Line : Short-term outlook for broking firms appears bleak

Mumbai, Nov. 6 The short-term outlook for broking firms in the country appears bleak if their second quarter results are anything to go by. Most of the listed broking firms have reported either a fall in net profit or at best a marginal rise in their bottomline for the period.

The standalone net profit of Geojit Financial Services plummeted 53 per cent to Rs 5.22 crore, Edelweiss’ net reported a drop of 33 per cent to Rs 4.7 crore, while India Infoline’s decreased by 29 per cent to Rs 32.2 crore.

Motilal Oswal’s second quarter net profit rose more than two-fold; this the company said was due to the figures only including that of the holding company which is into financing. Its consolidated net profit, which includes income from broking, fell 17 per cent to Rs 27.1 crore. JM Financial’s consolidated net profit declined 53 per cent to Rs 20.89 crore.

Marketmen said the firms had incurred huge expenses on expansion and other activities during the good times. “Since revenues did not increase according to expectations, and expenditure continues to rise, the firms have started to feel the pain now,” said Mr C.J. George, Managing Director of Geojit Financial Services.

Total expenditure on a consolidated basis of Geojit increased 22 per cent, Edelweiss’ 33 per cent, and India Infoline’s 46 per cent.

Cost-cutting

Mr Kisan C. Choksey, Chairman of KR Choksey Securities, said that broking houses were now being more cautious about their expenditure and cutting costs to save their profits from being further eroded. “Times are tough and we have to be stricter when it comes to expenditure.”

Broking firms across the country are looking at every way possible to curtail expenditure. From moving out of their swanky offices to not paying yearly bonuses for their employees…companies are doing it all.

Mr Motilal Oswal, Managing Director and Chairman of Motilal Oswal Financial Services, said his company is reducing costs in every possible way even if it means cutting down on stationery or on IT vendors. The company is also consolidating offices. “We have closed two of our four branches in Chennai, where we now have two big branches.”

The Managing Director of a stock broking firm said they are no longer hiring people for their new offices but were “re-deploying”.

Marketmen said that income from the merchant banking segment has been the worst affected. “What with almost no activity in the primary market, it comes as no surprise that the merchant banking division has been the worst hit,” said Mr Choksey.

Most of the broking firms reported a decline in income from their investment banking segments too.

Mr George said that the portfolio management business is another segment where revenues have reduced.