Even as India featured among the best performing equity markets in 2012, a record number of cash market brokers pulled out due to unsustainable business conditions.
According to latest Sebi data, the number of brokers in equity cash market dropped to 9,955 as on the last trading day of November 2012 against 10,268 as on March 31, 2012. On an average, the number of brokers has dropped by more than 50 every single month (until November) of FY13. The number of registered brokers stood at 10,203 and 9,772 in FY11 and FY10, respectively.
Experts said the brokerage business has been stagnating since the peak of 2008 and the business was not viable anymore due to various reasons ? high overhead costs, increase in compliance and risk management, depressed participation from retail investors and mutual funds and sub-zero brokerage fees.
?Cash market volume is falling due to low participation from retail investors and asset management companies. While the market has picked up, the rally is not broad-based and portfolio churning is low. Many investors have not recovered their losses after investing at the peak of 2008 and 2010,? said Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services.
Experts also said several price-control and compliance-related measures introduced by Sebi forced several brokerages to shut down. Brokerage fees have dropped to near-zero levels, while cost overheads have risen, making it unsustainable for sub-brokers and franchises to operate.
?When the market was booming, fresh college graduates and professionals opened franchises as alternate business. When the market started to slump, they could not generate enough revenue to cover up for expenses like high property rent, utilities and manpower. The business of sub-broking and franchise was not viable for these people,? said the head of a Mumbai-based brokerage.
A further look at the data showed that the tally of Sebi-registered corporate brokers nearly halved in FY13, led by a sharp fall in November 2012. Corporate brokers in equity market now stand at 2,439 as of November end against 4,877 and 4,774 in full year FY12 and FY11, respectively.
Experts attributed this drop to weak global economic conditions that had a negative on financial services business, which saw brokerages and institutions adopting a drastic cost-cutting approach as competition got stiffer. The business went online and individuals could trade at home or on their smart-phones , further reducing trading costs.
The data also showed a sharp and continuous drop in Sebi-registered sub-brokers in equity cash market. The number of sub-brokers now stands at 71,754 as of end of November against 75,378 as on March 31 2012.
It was still higher in March 2011 when a total of 83,808 sub-brokers were registered with the market regulator. Incidentally, this is the second consecutive year that the number of sub-brokers has actually shrunk in any financial year. On an average, 802 sub-brokers pulled out of the cash market every single month (until November) of FY13.
On the contrary, the number of brokers dealing in equity and currency derivatives has increased from last year. Sebi data showed the number of brokers in equity derivatives market so far this fiscal has increased to 2,439 from 2,337 as on March 31, 2012. The number was even lower in FY11, where 2,111 equity derivatives brokers were registered with Sebi.
