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Journalism of Courage
India8217;s brokerage industry,forced to lie low for a better part of last year amid a stock slump,are now back in action as a surge in domestic shares revives hopes for a pick-up in flows into equity markets.
This revival comes in the wake of a tough 2008/09,which saw a shrinkage in business,30-40 per cent job cuts and squeeze in margins,industry players said. But,an 86 per cent increase in the benchmark index since March points to better times,they add.
8220;There has been significant increase in volumes. People are also taking delivery of shares indicating good sentiments,8221; said C J George,managing director at Geojit BNP Paribas Financial Services Ltd.
Encouraged by rising volumes 8212; up two to threefold according to Geojit 8212; brokerage firms,whose revenues are directly linked to volume of trades,are cautiously exploring new avenues for business and have restarted hiring,officials say.
8220;Hiring have began on a smaller note,8221; said Nirmal Jain,chairman of brokerage firm India Infoline.
8220;We are seeing a good growth in the advisory operations,8221; he added,referring to wealth management services that some brokerages are launching.
But expansion on the hiring front is nowhere as aggressive as it was in the past two-three years.
8220;I think the brokerages will keep a hygienic level of staff for the time,8221; Anando Bhowmick,analyst at Fitch Ratings in Mumbai,said.
But good sentiments are not propelling brokerages to restart the stalled retail expansion in the near future.
8220;Securities firms are taking a cautious approach this time,8221; said Fitch8217;s Bhowmick.
The companies are waiting for signs that the stock market recovery will sustain before plunging into aggressive expansion,said George. Investors are still taking a very short-term view and booking profits on any small increase,he added.
Meanwhile,they are launching new verticals to sustain during volatile stock markets such as wealth management services to the millionaires.
With the complexities in the financial market going up,its difficult for individuals to manage their own portfolios,leading to growth in the vertical,they added.8221;
But,margins of brokerages have already improved from stagnant levels in 2008/09.
Top brokerages such as Motilal Oswal Securites reported EBIDTA margin of 39 per cent in 2008/09,unchanged from the previous year,while Edelweiss Capital reported pre-tax margin of 36.54 per cent,down from FY088217;s 41 per cent.
The industry is expecting operating margins to rise 10-15 per cent on year riding on the stock recovery,said India Infoline8217;s Jain.
