Doom situation for Indian broking industry

Around 18 brokerage firms have surrendered their licenses to National Stock Exchange in the last six month and many brokerage houses have either curtailed or wound up their research desk as a measure of cost control. Indian broking industry is facing worst days in the last 5-6 years. Poor run in the stock market, sustained bearish sentiment and global macro-economic uncertainty seem to have affected brokerage industry in India which was already operating on very thin brokerage margin.

You can often get calls from agents which are more than willing to negotiate on the brokerage. The standard rate of brokerage for intraday trading is 0.03 Rupees per hundred rupees. However, if you press further they will easily come to offer 0.01 Rupees per hundred rupees of transaction.

Stiff competition in the market have forced them to lower the commission structure in order to capture the market term. However, operating at such an ultra thin margin has made the business unviable over the longer term. Adding insult to injury is falling investors participation, dwindling volume owing to higher derivative volume has worsened the situation.

Dilemma of broking firms is very natural. If they curtail commission structure to win a client then they incur into loss and if they refuse to do the same then they lose a client.

Current situation is more due to structural changes in the industry. Smaller players will be forced to sell their business or will reduced to ashes. Ramesh Arora, MD, Kumar Share Brokers Limited, a leading regional share broking firm in Delhi, told The Sunday Indian, “Situation is very tough and only those players with deep pockets and innovative offering  will sustain in the long run.” Ramesh Arora has trusted set of clients so he can breathe easy. But not all small brokerage firms are so lucky.

Problems with smaller firms are at various fronts. Due to escalating cost of analysts they cannot afford them. Even big broking firms are facing challenge in retaining talent. They have to shelve out big amount in order to retain them. Brokerage industry is cyclical in nature. Once tide will turn in their favour, larger players will get entire market share.