Sharp volatility in volumes and value on stock markets in the last few months have driven brokers operating on wafer-thin volumes up the wall. Since the sustainability of brokerage houses depending solely on equity brokerage income is threatened, brokers are finding commodities a strong alternative to stock brokerage income in times of declining margins.
Stock brokers are increasingly picking up memberships on commodity exchanges such as the Multi-Commodity Exchange of India (MCX), National Multi-Commodity & Derivatives Exchange (NCDEX) and the Ahmedabad-based National Multi-Commodity Exchange (NMCE).
Said Narendra Gupta, deputy managing director, NCDEX: 150 members of stock exchanges are active on our exchange and 100 more are in the pipeline.
Leading south India-based brokerage houses like Geojit Financial Services and JRG Securities have managed to maintain their brokerage income by establishing a strong base in commodity trading.
Our commodities trading business is booming in pepper, rubber and cardamom. This has cushioned us from the decline in income from equity brokerage in the last two months, Satish Menon, chief operating officer, Geojit Financial Services Ltd said.
The average daily turnover in the stock market (BSE and NSE combined) has declined from Rs 7,250 crore in April 2004 to about Rs 5,000 crore.
Equity brokerage business is turning out to be a seasonal business. Four months we have good business, four months it is average and for four months it is really bad, says Mumbai-based Jayesh Seth, director, Kantilal Chhaganlal Securities.
This uncertainty has led several equity brokerage houses to metamorphose to one-stop financial superstores. And commodity brokerage is now occupying the premium position in the bouquet of services offered by stock-brokers. This is despite that fact that it is a new avenue for trading in futures segment.
Commodities trading is not new to Indians. Masses can also identify with it, given the fact that India has been an agrarian economy. It is only the new trading system that an investor has to get familiar with, Mr Sheth added.
JRG Securities has been generating volumes as high as Rs 35-50 crore a day alone on commodities exchanges. We have a client base which is equally enthusiastic about equities and commodities futures. In fact, in the last couple of months, falling equity prices have diverted interest to commodities and our trading volumes in pepper and rubber futures have jumped sharply, Regi Jacob, chairman, JRG Wealth Management said.
Moreover, commodity prices are not as sensitive to political concerns as much as equity markets. Policy changes also have a gradual and slower impact on prices of commodities than stock prices. This keeps the brokerage houses fairly in control.