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At a time when Inventure Growth & Securities made a dream debut at the bourses, the fortunes for other listed brokerage firms faded, as most of the companies' stocks fell today between one and four per cent.
Low activity in the cash market caused by falling stocks has adversely affected the income and profit of broking firms in the last two quarters. Most brokerages have seen their income as well as their net profit decline for the March 2011 and June 2011 quarters.
Analysts say broking firms across the board are losing business as both retail and institutional investors' participation in the market is declining. “Nobody is an exception irrespective of what they say. Market cash volumes have dwindled significantly. The F&O business contributes to 91 per cent of the total market. Brokerage received on F&O is lower than from the cash markets,” said Mr Sudip Bandyopadhyay, Chairman and Managing Director, Destimoney Securities.
The options business contributes to 70 per cent of the total market business, he added. Cash volumes on the BSE have seen a sharp drop of 22.1 per cent (around Rs 761 crore) between January 2011 and June 2011.
During the same period retail investors on the BSE have been net sellers of equities, of Rs 4,724.9 crore. FIIs were also heavy sellers. Their net sales on the BSE and the NSE stood at Rs 8,696.35 crore. DIIs were net buyers at Rs 14, 511 crore.
The business opportunities for brokerages are just not available anymore especially with commissions being compromised, say industry players. Whether it is the sale of mutual funds or ULIPs, commissions have come down drastically, impacting business heavily.
For most of the industry players consolidation is the only way forward, say analysts. “The time is right for mergers and acquisitions activity in the industry. Most mid-tier broking firms are already up for some form of transaction – either by way of raising money or through the sale of their respective business,” said the head of a broking firm.
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