People outside the financial industry may not realise the ails of the industry! Let us look at the brokerage industry. Not long ago – circa 199o even until 1999, brokerage rates were falling but still was about 2% per transactions. Then the corporate sector war started – chasing the top line to come out with a public issue! So brokerage rates dropped – if you click on one of the ads that appear on this blog you will get ‘delivery’ brokerage rates of 0.15 – a far cry from the peak of 2.5% that we have charged in the 1980s and even in the 1990s.

The bigger players reduced broking to a pure trading game – imagine if you were earning 2.5% (and are now earning 0.25%) you need the same client to do 10 times the business to be where you are. This is not just tough, it is almost impossible if he is an investor. Even for a trader the brokerage rates have fallen and he has to perhaps do 15 times as much business. This means if all the brokers in the country have to make money the cash market has to be at 15 lakh crores volume…we are really far away.

Also clients do not like to pay brokerage. If they see a transaction with say Rs. 80,000 as brokerage – he will just say ‘aadha kar do, na’ ..and it happens! Salaries, rent, other expenses are all doubling every 3 years. Turnover is also increasing, but the revenues that the brokerages touched even in 2006-7 is now difficult to achieve..and the more aggressive techniques hurt more 🙂

The industry is to be blamed partially – they made the business very glamorous, has almost zero entry barrier, a few clients together buy a card – because it is better to boast in a cocktail party,…and more importantly they had turned to a game…of buying and selling every 15 minutes. All this now hurt the industry which is grinning and bearing it…well there is no choice but to wait for the shake out, which is refusing to happen!

So keeping fingers crossed……Amen!

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  1. Subra Sir,

    New players are still trying to enter. the story on ABNuvo also mentioned Birlas trying to enter this business and aiming to make money.

    Generally more players make the rates go down for the end consumer but this always hurt the initial biggies who make good fortune. Similar would be the case here. Less margins but expecting the volume to grow.


  2. Why broking industry, all businesses these days are hit by requirement of high upfront capital. High rental, sky rocketing property prices, surge in salaries, higher taxes and commissions, competition coupled with corruption and poor regulations makes any ethical business difficult to survive. No wonders malls occupancy rate is all time low (30%).

  3. however in the broking industry more new comers will not result in lower brokerage beyond a certain point. However the strong will lose some muscle. The overall size of the industry is also not increasing in the financial services industry – the brokerage, mutual funds or life insurance!

    However the market is saying ‘Banking sector is booming’. Well the net margins of the banking industry is not in a bad shape…so perhaps they are right. Not sure.

  4. Subra,

    I was 16 when I was introduced to the stock market – I used to go with my dad to the neighbourhood sub broker – gather around with wiser (?) men and learn about the market, deal and I think it was an essential part of my learning process. I am 31 now – 15 years later that sub broker has vanished, I deal online and dont trust the kids who claim to be able to help me if I go offline ( mind you they arent very young, just fresh in the market) – I might be ready to pay more but then the experience needs to add something to what I am getting – convenience of online is good but sitting with 5 older people who alongwith a broker discussing ones ideas was something I will never forget…maybe thats the differentiator missing in the whole cycle

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