Indian broking industry heading for the worst crisis in a decade

When the highest paid Bollywood heroine Kareena Kapoor promotes the cheapest possible transaction in the country, something is wrong with either Kapoor, or the transaction. Going by the events, Kapoor is quite well off getting paid for her role, but are the stock brokers getting paid even to survive? The last time when a brokerage had a brand ambassador in a prominent movie star was during the technology boom, Shah Rukh Khan who modelled for Home Trade. The exuberance over the transformation of the Indian economy and the stock markets then pushed many to indulge in unrewarding acts.
The crash that followed left scores of brokerages bankrupt, including Home Trade. Many fear that the industry is on the verge of a repeat performance. Although the scale and magnitude of the shake up in the industry is difficult to forecast this time, it is probably heading for its worst period in at least a decade , probably even surpassing the 2008 cuts. The state of the broking industry is best reflected in BMA Wealth Creators' promotion of transactions at 'just 1 paisa per trade' a fiftieth of the minimum legal tender. The last time anyone transacted at that denomination was about three decades ago. "The industry has been going through a turmoil over the past sixseven months because of lack of volumes in the market," says B Gopakumar , executive vice-president at Kotak Securities. "I don't think there is cause for concern.

The realignment will happen as the market absorbs talent. The broking business has not changed because of regulatory changes, but because of declining volume, low earnings and even lesser yield. Firms make money in the cash segment, but with increasing number of stocks in futures & options , the source of earning has been drying up." He adds. Commissions in derivates are insignificant. Scores of brokerages are either eliminating staff as revenues and profits begin to dwindle, or shuttering altogether evoking memories of the 2002 and 1997 after the South East Asian crisis. Alchemy Share & Stock Brokers, partly owned by billionaire Rajesh Jhunjhunwala , wound up its institutional business, Motilal Oswal Securities sent off more than 100 of its staff and Tower Capital lost nearly half its employees. Many are contemplating reductions in salaries and other costs, including moving to a less expensive location. This is taking a toll on families and small businesses that could wreck the industry for the time being, but could lead to higher cost for investors once the excess flab is cut out.
The possibility of higher brokerage a few years down the line remains a possibility. "For the past two months, my earnings have been as little as Rs 5,000 a month," says Yogendra Kumar Singh , a sub-broker for Shreepati Holdings & Finance, in Kolkata who earned as much as Rs 95,000 a month few years ago. "I sold off some personal shares to meet family's monthly expenses. I just spent my entire capital in my first daughter's marriage and I am not too sure, what I would do for the next two." 
Source http://economictimes.indiatimes.com/