Small brokerages find the going tough

The wild gyration the capital market has been witnessing for a long time seems to have taken a toll not only on big brokerages with a pan-India presence, but also on small regional brokerages, which may be more nimble.

The extent to which the business has been hurt could be gauged from a campaign launched by one of the most respectable national-level brokerages in the business, which has offered to refund new members up to Rs 1,000 if they generate brokerage fees worth more than Rs 1,000 within a month of opening the account !

Low biz and cost cutting

Symptomatic of the tough going has been the experience of two Coimbatore-based brokerage houses which have found the business volume shrinking alarmingly. Consequently, the employee morale has also come down.

To cope with the tough business environment, the companies have resorted to several cost-saving measures, such as leaving vacancies unfilled, and not opening new branches.

Mr D. Balasundaram, Chairman, Coimbatore Capital Ltd and former President of the Coimbatore Stock Exchange, told Business Line his company's business volume had fallen in the cash market — the main source of his brokerage fees — by about 30 per cent in 2010-11 and 20 per cent in 2011-12.

The derivatives volume too had taken a 30-per cent knock in 2011-12. The overall decline in broking income was 20 per cent in 2010-11 and 32 per cent in 2011-12, he said.

Volatility — a dampener

Surprisingly, the volatility in the capital market seems to have dragged down the volume in day trading more than in the cash market. He said the fall in day trading was more than in cash market trading. Investment buying is about 10 per cent in short term and 5 per cent in long term, he said.

Mr Jose C. Abraham, Managing Director, Fortune Wealth Management Co India (P) Ltd, too said, his company has been hit by a steep fall in business compared to the same period last year. The daily trading volume for the city-based Fortune was about Rs 120 crore earlier, but it has shrunk to about Rs 70 crore at present. To cope with the pressure on business, his company had shut some branches while a few others had been converted into sub-broker offices. It has also adopted a policy of not replacing staff who quit. Growth in commodities trading was of little consolation when the overall business volume is taking a hit.

Staff morale affected

Referring to the impact of shrinking business on staff morale, Mr Abraham said “staff morale is naturally affected” and that “recruiting and retaining talented staff has become increasingly challenging”. The “advancement in trading hours to 9 a.m. (which nobody wanted and benefitted none), difficulty in bringing in new clients, range-bound market in which traders do not benefit, lack of growth in remuneration packages and job security” have affected the ability of the brokerages to retain talented staff.

Mr Balasundaram said younger investors “were not in the market before and the same is the situation now also” as they seem to have other priorities. Though his company has excess employees, it was not reducing staff, although it did not recruit employees to fill up vacancies, except in critical areas.

He said his company had not pruned pay packets, but annual increases have been ‘more modest' and the “profit based incentive is very much less.” He conceded that staff morale was down, particularly due to the increase in cost of living.

The hope that the opening of the investment window through the stock exchanges in mutual funds would spur business, has also been belied. The sale of mutual fund units had come down and the volumes in the Stock Exchanges were also low.

On the long term impact of the market downturn, Mr Balasundaram said the company was going slow on branch expansion. Already, about 10 franchisees have downed shutters though branches have not been closed. But, he warned, “if the trend continues for another year, that may be an eventuality”.

Mr Abraham also said younger people were not investing in a big way. The “culture of trading has become all pervasive, prompted by brokers, TV channels and Stock Exchanges” but “in trading, over 90 per cent lose money.”

He was also not planning any direct branches as they are “straight away unviable.”

The trend now is that “clients are becoming franchisees and that also is affecting brokers' income,” Mr Abraham said.

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