2. HISTORY OF STOCK BROKING
• During the 11th century-French began regulating and trading agricultural debts on behalf of the
banking community, creating the first brokerage system.
• In 1602-Dutch East India Company became the first publicly traded company
• In 1801- London Stock Exchange
• Then -Citigroup , Dutch, Morgan Stanley , Goldman Sachs
3. LEADING INDIAN PLAYERS
1. Motilal Oswal Securities: Terminals-7923, Sub Brokers-890
2. Angel Broking Limited: Terminals-5715, Sub Brokers-NA
3. Kotak Securities ltd: Terminals-4320, Sub Brokers-910.
4. Indiabulls: Terminals-2876, Sub Brokers-NA
5. Reliance Money: Terminals-2428, Sub Brokers-1494
6. Karvy Stock Broking Limited: Terminals-1700, Sub Brokers-19000.
7. Anand Rathi Securities Limited: Terminals-1527, Sub Brokers-320
8. Geojit: Terminals-627, Sub Brokers
9. IIFL (India Infoline): Terminals-173, Sub Brokers-173
10. ICICI Direct:
11. HDFC Securities:
12. SBI Capital:
13. HSBC:
14. Standard Char:
15. RELIGARE:
16. Sharekhan:
17. 5 Paisa:
18. Just Trade:
19. Ventura:
4. Numbers to Note:
• Total equity brokerage house : 189
• Total trading terminals : 144,346
• Total branches/ offices : 21,013
• Total employees :77,125
• Total annual revenue : Rs.100-105 bullion
• The top 10 companies holding more than two thirds (66%) of the total
terminals.(NEAT, BOLT and CTCL licenses)
• Approximately 85% broking houses entered in business in 1991-2000 (the financial
sector reforms)
5. INDUSTRY OVERVIEW
• The top 10 companies holding more than two thirds (66%) of the total terminals.
• Mumbai and Delhi account for the highest number of terminals with 26% and 15% share
respectively
• Around 11% of companies collectively have 19 subsidiaries in the overseas market.
• Around 74% agree about the need for a strong regulatory body for the broking industry.
• 24% of the companies have plans to raise capital over the next one year largely through
private placement and IPOs.
• Industry Gained momentum in terms of scope and scale.
• Competition in the broking space has intensified (increased very high) with entry of new firms
• Market experiencing rapid growth and financial integration gaining speed, the role of
intermediation will strengthen further
6. Western region has highest number of companies
• More than 50% companies, based in western India(Gujarat, Maharashtra and Dadra & Nagar Haveli)
• City-wise, Mumbai leads the pack with 41% companies, followed by Delhi, Kolkata,
Rajkot, Bangaluru and Surat.
7. COMPETITION
• Major foreign players
CLSA,
Morgan Stanley,
Merrill Lynch,
JP Morgan and ,
Credit Suisse
have around 70% of the market share,
• FIIs or foreign investors, which drive much of the Indian market, feel more
comfortable dealing with international partners. (foreign broking houses)
• In the next few years, even if the Indian market improves, the market share of foreign
players will increase to 80% because they have technology and clients on their side.
• Hopefully, the new sources of revenues will become big enough for Indian brokers to
stay in the game.
8. ADV & GROWTH RATE OF EQUITY BROKERAGE TURNOVER
Average daily volumes
2012- Rs 1.43 trillion
2013- Rs 1.65 trillion (increased by 15%)
Further expected to reach US$ 6535.7 billion till 2015
10. EQUITY MARKETS UPDATE FY 2012-13
Strong growth in overall market turnover:
• Equity derivative volumes grew by 19% .
Within the equity derivative segment, futures volumes continued their downward trend
and declined by 13% in FY12-13
while options volumes increased by a further 29%
• Cash volumes declining by 9%
• The domestic equity brokerage turnover increase of 16%
2013- Rs 356 trillion (increased by 16%)
2012- Rs 309 trillion
11. STOCK EXCHANGES OF INDIA
• Total Exchanges: 24
• Regional: 20
• National: NSE, BSE, OTCEI(Over the Counter Exchange of India Limited) , ISE(Inter-connected Stock Exchange )
12. volume Contribution from overall exchange volume
•2012-13=8%
•2011-12=10%
•2010-11=13%
Cash
market
volume
account
for
•2012-13=16%
•2011-12=22%
•2010-11=29%
Futures
market
volumes
account for
•2012-13=76%
•2011-12= 70%
•2010-11=65%
Options
volumes
account
for
• 2012-13=92%
•2011-12= 70%
•2010-11=65%
Deriva
tives
contribu
tion in
overall
exchang
e traded
volumes
14. CASH & DERIVATIVES VOLUME (Graph)
• 2013-Derivatives account for 92% of total volume, cash 8%.
• Within the Options segment, the index option based on NIFTY:
2012- Account for 96% of the total options volume
2013- Account for 93% of the total options volume (decrease by 3%)
16. INSTITUTIONAL PARTICIPATION IN INDISN EQUITIES:
• In 2012 the contribution of DII segment was only 40 to 50% of FII volumes
17. NUMBER OF TRADES IN CASH & DERIVATIVES SEGMENT
• Cash segment:
Number of trades declined by 17% (annualized)
Average trade size remained flat (Rs 18,950) compared to FY11-12 (Rs. 19,009 ).
• Derivative segment:
Number of contracts continued to increase by 14% (annualized)
Average trade size also increase by 4%
FY 2012-13: (Rs. 0.27 million) per trade
FY 2011-12: (Rs 0.26 million) per trade in
19. OVER VIEW OF INDIA COMMODITY MARKET
• As compared to global standards, where generally commodity markets are bigger than equity markets by
many folds, the Indian commodity market is yet to be developed.
• Currently regulations only allow only Indian corporate and agricultural houses to trade in the commodity
markets apart from the retail investors
• Other institutional investors (FII’S) are not allowed to participate in the Indian exchange based
commodity markets.
• The Union Budget 2013 have introduced the Commodity Transaction Tax of 0.01% on Non-agricultural
commodity futures, (similar to STT levied on equity futures transactions).
• Commodities broking revenue estimated at Rs 17-23 billion per annum FY 2012-13.
• Commodities market involve higher operating risk compared to equity markets
– Physical holding of the commodity at exchange warehouses
– liquidity is also low for some of the agricultural based commodities,
• The commodity segment is still in a developing stage in India and expected to grow in the long run.
20. COMMODITY EXCHANGE
• Total commodity Exchanges in India: 22
– Regional : 16
– National : 6
• The five National Commodity Exchanges contributed 99.76 % to the total value of
trade in the Commodity Futures Market.
• Commodity exchanges:
– MCX, Mumbai (85.63 %),
– NCDEX, Mumbai (11.56 %),
– ACE Derivatives and Commodity Exchange Ltd., Mumbai (1.35%),
– NMCE, Ahmedabad (0.73 %) and
– ICEX, Mumbai (0.49 %).
22. VOLUME GROWTH IN COMMODITY MARKET
China is one of the largest consumers of commodities.
Growth in Exchange traded commodity volumes stagnates after seeing healthy
growth for last couple of years
24. OVERVIEW OF CURRENCY MARKET
• Currency segment growing at a steady pace.
• Currency market turnover: Rs. 61.22 trillion, (decline by 18% on an annualized basis.)
• Currency Exchanges Market Share:
NSE: 58-63% (Market leader)
MCX-SX : 35-42%
• In terms of currency pairs traded:
USD-INR: accounts for more than 95% of overall trading with other three currency pairs
EURO-INR:
GBP-INR:
JPY-INR:
• Currency brokerage revenue:
Rs 4-5 billion (increase of 8-12% in 2013.)
27. The changes that have taken place in the broking industry
in the past five years
• Increase in derivative volume and particularly in Options.
• Brokerage rates are coming down.
• Large network of franchisee / branches of the brokers
• Increased focus on marketing by small brokers
• Commodity market is growing at much higher.
• Broking firms are well- equipped to manage the risk under highly volatile markets
28. INDUSTRY REVENUE
• Annual brokerage revenue: (Rs 100 - 105 billion), remains flat compared to FY 11-12.
Foreign brokerage houses: account for 66-75%
domestic brokerage houses: rest 25-36%
• Contribution of brokerage revenue to Indian broking house:
Equity : Have flat in 2013.
Commodity : Rs.17-23 billion 2013.
Currency : Rs.4-5 billion (increase of 8-12% in 2013.)
• Decline in cash volumes as well as the futures volume impacted overall
gross yield by 15-20% compared to FY 11-12.
29. DECLINING MARKET SHARE OF TOP 10 BROKING FIRM:
• 2012-13: Sharp decline in market share for the top-10 brokers while moderate
decline in the market share of the top-100 brokers.
30. PERFORMANCE UPDATE OF BROKING FIRM: FY12-13:
• Overall revenue remains flat in FY12-13 compared to FY 11-12
• RONW has been increased from 8.9% to 10.1%
31. COST INCOME RATIO
• Overall operating expenses declined by 7-8% in FY12-13
• In ICRA’s view, while brokers have cut costs aggressively, the scope for further cost rationalization
could be limited.
• Profitability as a percentage of total revenues improved to 15% in FY12-13 as compared to 13% in
FY11-12.
• Return to assets improved to 3.6% in H1FY12-13 from 3.3% in FY11-12.
34. EMPLOYEE BREAKUP
• Majority of the employees involved in marketing and trading activities.
• Around 58% of the total employee strength of around 54,000 is collectively involved in marketing
and trading activities.
• 1% of the employees are involved in research-related activities such as fundamental and technical
research and analysis.
35. Operating profit and net profit margins of large,
mid-size and small companies
Companies profit margin:
Large : 17% (approximately)
Medium : 9.5% (approximately)
Small : 10.5% (approximately)
36. MAJOR CHALLENGES TO INDIAN BROKERAGE INDUSTRY
• Changing technology and competition from foreigners is forcing most Indian broking firms to look for other
revenue sources
• Apart from Motilal Oswal, there is not a single listed broking company where the bulk of revenue comes from
pure broking.
• Motilal Oswal is the only exception. Around 70% of its revenues come from core broking,
• There are six listed broking firms, of which three (Edelweiss, IIFL and India-bulls) known as (NBFCs), where only
20% of the business comes from broking activities and the rest from lending, private equity or other fee-based
businesses like investment banking.
• IIFL had around only 29% of its revenues from broking (rest from lending and other fee-based activities)
• Edelweiss Financials, broking revenues now account for only 20% of the overall income, in 2007 was 60% .
• Yields from broking may fall further, to even 5 basis points (0.05 percent),
• In the next few years, even if the Indian market improves, the market share of foreign players will increase to 80%
because they have technology and clients on their side.
• The major concern of the brokerage industry in India is the low participation of Retail/small investors.
37. MAJOR CHALLENGES TO INDIAN BROKERAGE INDUSTRY(cont)
• In 2012-13 instead of reduction in cost by 7-8%, total capital market related earning remained
almost flat.
• Lack of big IPOs, low retail investor participation have effected broking companies income.
• Continuously declining brokerage rate
• The Union Budget 2013:
Introduced CTT (commodities transaction tax), on non-agriculture commodities futures trading and
Reduced (STT) on equity futures contracts to 0.01% from 0.017%,
• SEBI introduced Capp on brokerage commission fees: (2012)
cash segment: 12 basis points
F&O segment: 5 basis points ,,, for mutual funds.
38. Key factors for long term growth
• Technology will be one of the key growth drivers
• Quality and maturity of services
• Distribution networks
• Diversification of services
• Expertise and research
• Transparency
• Market integrity
39. Suggestion for strengthening Indian securities market
• As a strategic move, company should enter in to other businesses also, like
Credit
life insurance
Focus more on commodity and currency segment
• Increase financial flow to stock market
• Increase participation of domestic institutions
• Liberalize credit norms for retail investors
• Stepping up investors awareness programs
• More number of foreign institutions
• Introduction of more products
• Permission to open terminal in abroad
• The major growth driver of the Indian Equity Market are Favorable Demographic Profile, Strength in
Indian Economy.
40. Indian broking industry in the next few years
• Old troubles may continue to plague (Effect) the industry ahead.
• While brokers have cut costs aggressively, less scope for further cost cutting.
• Commodities and currencies have emerged as dependable sources of diversification.
• Competitive pressures will continue.
• Retail participation remains uncertain.
• ICRA revises its outlook on the sector to “Stable” from “Negative”.
• There is going to be substantial increase in the volume of commodity and currency segments.
• Broking houses need to upgrade the employees skill, tap the HNI segment by delivering wealth
management and financial planning services.
• There is likely to be increase in the demand by Indians for investment in foreign Equity markets to tap the
best possible returns available as well as to diversify the risk.
• Fund Management with the route of PMS will play a vital role to meet the requirement of different risk
profile of the investors, particularly HNIs.