IPO financing boosts brokerages' profits

| Updated on: Feb 15, 2011
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A pick up in broking firms' finance-related activities pushed up profits for these companies for the third quarter of the current fiscal. The first two quarters of the fiscal had only brought dips in profits for these entities.

With good participation by high net worth Individuals in the primary market issuances, the income from financing of a lot, the broking firms saw a rise.

JM Financial, Edelweiss Capital, Reliance Capital, Motilal Oswal Financial Services and India Infoline all reported a surge in their consolidated net profit during the quarter, both sequentially and on a year-on-year basis.

“We saw a rise in finance-related activities as there were a lot of primary market issuances this quarter. With the rates of interest also on the rise, interest income also saw a rise”, said Mr Motilal Oswal, Chairman and Managing Director at Motilal Oswal Financial Services.

Low retail participation

With retail participation in the markets remaining very low, the broking firms are now focusing on financing, said Mr. Vinay Agrawal, Executive Director of Equity Broking at Angel Broking. “Businesses which are ancillary to broking have done very well this quarter.”

A lot of broking firms which have good institutional business have also seen a spike in net profits. “The institutional broking business is also growing with increasing volumes and client empanelment”, said Mr Nimesh Kampani, Chairman, JM Financial Group, at the time of the company announcing its quarterly results.

However, a lot of small broking firms with the larger part of their income generated from retail broking are still having a hard time.

“With retail investors staying away form the stock markets; it is putting a lot pressure on the smaller broking firms. There is no excitement in the market, and traded volumes are shrinking. The smaller players will find it hard to survive in such market conditions”, said Mr Rakesh Goyal, Senior Vice-President at Bonanza Portfolio.

Mr C.J. George, Managing Director at Geojit BNP Paribas Financial Services explained that at times like this the large players who have huge balance sheets and the very small players who have limited exposure are not impacted as much as the “guys in between” who when times were good scaled up “too fast”.

Published on February 15, 2011

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