Declining cash volumes, abysmal retail participation and consistent pressure on broking commissions have compelling several domestic broking houses to scale back operations in a big way. According to broking industry sources, both Indiabulls Securities and Religare Securities are closing down branches in a restructuring of their operations.
Sources add that while Motilal Oswal has reportedly let go of some mid-level executives, Angel Broking is in the process of winding up its institutional clients division, which it started in 2010 with a small team.
?Religare is closing down branches in a bid to cut costs and it plans to rely more on the franchisee model going forward focussing on HNIs rather than retail customers,? said a senior official from a broking firm. An email sent to Religare went unanswered at the time of going to press.
? Indiabulls (Securities) has been scaling down for the past 3-4 years and reducing the number of cities it is present in. Instead, the group is concentrating on its more profitable businesses,? said a retail broking head.
?I have interviewed a lot of people from Indiabulls recently. It is clear that they have been facing performance pressure and the company is feeling the pinch, ? said the official.
?Some people have been asked to go, but these are performance related lay-offs,? said Divyesh Shah, CEO, Indiabulls Securities. Shah, however, denied that any of the firm?s branches had ceased operations. Indiabulls Securities ? net profit for FY11 declined more than 40%. It dipped to R37.8 crore from R67.4 crore in the year-ago period.
On the the other hand, Angel Broking, a predominantly retail player, is finding its institutional business unviable, according to market observers. ?We have an institutional team of about 25 people. The business has shrunk but there is no need to downsize yet,? said Vinay Agrawal, executive director, Angel Broking.
The broking house was largely using its retail research team to service its institutional clients, said market observers.
The contribution of the cash segment to the total average daily turnover has been consistently declining over the past year and touched a historic low of 10% for the quarter ended March 2011. What ? s more, broking yields have fallen almost 25% in the last one year.
The increased activity in low-yield options has also dented profit margins. Raamdeo Agrawal, managing director, Motilal Oswal Financial Services recently expressed his concern about the deteriorating situation when he said, ?Cash volumes are just not there. For every one rupee of cash turnover there is R10 of futures and options. It? s not healthy and things are getting worse.?
?Things will be tough for the next two quarters for broking houses as the market is likely to stay range-bound and volumes are likely to remain low, ? said Prasanth Prabhakaran, president of retail broking at IIFL.