Growing investor participation in the securities market has helped revive the stock broking business in India, with most brokerages recording a growth of over 50-75 per cent in the last one year, experts say.
Following the formation of a reforms-oriented government at the Centre, there has been a substantial increase in trading in the capital market, with the number of investor accounts climbing 8 per cent in a year.
According to estimates from stock broking firm HDFC Securities, most brokerages saw a growth of more than 50-75 per cent in the past year because of buoyant capital markets.
“This growth has been encouraged by a roughly 50 per cent rise in client acquisition as also volume of trade,” HDFC Securities Managing Director and CEO Dhiraj Relli told PTI.
“Improved markets have prompted a lot of investors to return to equities.”
Stock brokerage business saw a growth of about 30 per cent in terms of clientele and revenue on back of record inflows from overseas investors and increasing domestic participation in Indian securities, data compiled by Religare Securities, a broking arm of Religare Enterprises, showed.
“Investors naturally prefer rising markets and the BJP’s election by majority has ensured that. Foreign fund inflows have been good, reflecting confidence of the international community,” Religare Securities MD and CEO Nitin Jain said.
“The fall in price of crude oil leading to lower inflation and a lower current account deficit were the icing on the cake, which led to an increase in business.”
Noting that 12 brokers added about 17 lakh trading accounts in the last fiscal (2014-15), stock brokerage firm Yes Securities CEO Kapil Bali said: “The trading accounts have outpaced the growth in the demat accounts.”
He added: “There is a positive sentiment towards all stocks and the broking industry is expected to benefit from higher investment flows in both secondary as well as primary markets.”
According to Relli, the broking business has improved after going through a difficult phase in the last couple of years.
“In the past, the broking houses saw a drop in yield and realisation amid tough market conditions, resulting in higher stress on their sustenance.
But renewed interest and upward market movement of over 6,000 points in the last 15 months have helped recoup investor sentiment and usher in a recovery,” Relli added.
Experts feel that the broking industry is set to see consolidation amid a declining number of brokers.
Latest Sebi data showed that the total number of stock brokers operating in the cash segment of the India’s stock exchanges has nearly halved to 3,194, in the current fiscal.
“The industry would consolidate and would see more resilient large format brokerage houses and niche discount brokerage houses,” Relli said.
“Today, entry barriers are very low and that has led to quality issues. Competition has driven yields to unsustainably low levels. Regulation is stricter than ever, and rightly so,” Jain noted.
“All these factors will ensure the number of brokers goes down further and only those who adapt quickly to the changed paradigm will survive and grow.”
Bali said the consolidation “is not happening in the literal sense of the term, but rather on the client side where there is a definite migration towards the larger and/or more established brokers”.
He also observed that with increasing use of Internet and mobile-based trading, brokerages that invested in technology are better placed to reap benefits of this migration.
However, brokers see certain taxes on securities as the biggest barrier to more retail participation.
“These (taxes) need to be rationalised in our opinion if we are to see savings getting channelised into equity markets,” Bali said.