The Hindu Business Line : ‘A shakeout in broking industry seems imminent’

The broking business is changing like never before. “A shakeout in the broking industry seems to be imminent,” said Mr Bijay Murmuria, Alternate President, Association of NSE Members of India (ANMI), in an interview to Business Line, while referring to some of the recent trends concerning the equity market, the need for rationalisation of costs and the association’s views on a range of critical issues.

Single stock futures have grown significantly, while stock options are yet to catch up. How do you read the situation?

Stock options have not grown because of more than one reason. There is a lack of proper awareness among investors. Also, there has been an imposition of STT (securities transaction tax) on the strike price plus premium. In fact, this is making it counterproductive and a costly proposition as well.

At ANMI, we have given our representation to the Finance Ministry for bringing about appropriate changes in regulations. The idea is to develop the stock options market further. We believe, and have indeed pointed it out, that STT should be levied on the premium excluding the strike price. SEBI is also aware of the issue.

Indian brokers today face more competition from foreign broking houses. How will the future shape up? What are the trends that are likely to emerge?

As we see it, foreign broking outfits are beginning to scale up their presence in India. In fact, some of them are reported to be taking over domestic players. The main driver in this case is obviously the boom prevailing in the stock market, which, in turn, derives its strength from the country’s flourishing economy.

Let me add here that the same reasoning may be extended to the larger exchanges as well. This trend, we feel, is here to stay. In other words, a shakeout in the broking industry seems to be imminent. With falling margins and greater need for what are often called ‘umbrella services’, larger organisations will increase their presence.

However, at the same time, small, boutique broking firms will be able to sustain their businesses, especially on the strength of personalised, value-added services. The same scenario prevails in a parallel manner in a number of other spheres. I am referring to the likes of multiplexes and super markets as well as to the manufacturing industry.

Is there scope for further rationalisation of transaction costs? With increasing volumes, can costs come down?

The investor is now paying statutory transaction costs under several heads – service tax, STT, stamp duty, SEBI registration fee, exchange transaction charges, DP charges and brokerage. These are multifarious in nature, payable to different organisations separately. Yet all this adds to the investor’s overall cost and time. In the long-term interest of the capital market, there is a need to rationalise such costs on the lower side. Also, the collection mechanism that is now in place should also be simplified.

The broking industry is rapidly consolidating, with players doing M&As and selling stakes to private equity firms. What is the way forward?

I agree that a few broking firms have indeed sold some portions of their equity to PE players. Nevertheless, larger consolidation, marked by extensive M&As, is still to happen. This is in spite of the growing need for the same. Issues relating to procedural aspects need to be adequately addressed. In fact, the Finance Minister has also stressed on this need.

We at ANMI have already sought simplification with regard to a number of issues. These include dominant shareholding, easy transfer of shares, refund of security deposits, continuance of clientele with same KYC forms and non-levy of any exchange fee. We feel that on the basis of simplified procedures, brokers will be able to consolidate with a view to remaining competitive. — Nilanjan Dey

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