Domestic brokerage houses focused on retail and high net worth individuals (HNI) are getting into institutional broking. At least three brokerages, namely Indiabulls Securities, SMC Online and Angel Broking, have entered this space in the last six months or so and are ramping up their presence.
Subdued retail participation, declining brokerage charges and lower margins coupled with high overhead costs have compelled brokerages to look at the institutional side. ?Institutional business gives better branding, visibility, stature and will help to broaden the investor base,? said Jagannadham Thunuguntla, equity head, SMC Capitals.
Institutional ticket size is higher than the retail segment. ?The yields are better as brokerage rates charged are much higher,? said Vinay Agrawal , director (equities broking) of Angel Broking. Institutional broking charges for equities is estimated to be anywhere between 10 bps and 30 bps. In retail, for high volume customers, rates are about 8 paise for delivery and half paisa for trading and derivatives. What?s more, as most of the institutional clientele is based in Mumbai and Delhi, brokerages do not have to set up offices across India to cater to them as in the case of retail and HNI clients.
Higher FII participation is also prompting brokerages to look at institutional business. ?The entry of more FIIs will expand the market. Right now, about 30 players cater to the institutional segment. There is room for more,? said Divyesh Shah, CEO, Indiabulls Securities. The number of FIIs registered as on June 30 had risen to 1,713 from 1,668 a year ago, according to Sebi data.
To be sure, most FIIs do business with foreign brokerages. According to industry experts, 70% of institutional business in India is cornered by foreign brokers. Top 50 Indian brokers fight for the remaining 30% share, of which 20% share goes to top 10 brokers. So the remaining 40 generally focus on retail and HNI clients. About 20% of the total market volumes come from the institutional side.
Despite the glamour, brokerages admit building relationships with institutions is time consuming. Institutions have a mandatory empanelment process to ensure the research processes of brokerages are adequately tested. It generally takes 12-18 months for empanelment with FIIs and 6-12 months with domestic institutions. ?Once you establish a rapport, healthy margins follow. One can get good volumes even from 15-20 clients,? said Jagannadham.