You talk to the big brokerage firms and they keep wondering why are they still in the brokerage business. Some of the older players are now well established – like Kotak, Icici and of course Hdfc. However the role of the brokerage business in the success of banks like Axis, Standard Chartered, Hsbc, Idbi, is not clear. Even if they have a brokerage business is it profitable? Or even if it is not profitable is it adding clientele to the bank?

One big brokerage firm tells me that when markets go down volumes go down but when market goes up volumes do not go up fast. This is largely because there are too many small brokers who gobble up the volume. These are like family outfits working with very low overheads and can afford to cut rates. In this scenario why would BNP (remember the reverse of this PNB has enough NPA worries!!) buy a brokerage firm? Does it make any sense at all?

Well it makes some sense if the skill of Sharekhan is used for international operations. BNP operates all over Europe so if Sharekhan’s infra is used for learning and BNP can add on clients all over the world and deal in say 5 stock exchanges INCLUDING India, it would be a good move. Not otherwise.

This move to buy sharekhan is a good move for IDFC, and other shareholders of Sharekhan who were desperately looking for an exit. The market boom in brokerage was like a brilliant move to take the business off its shoulders. So IDFC which was tied down to just Sharekhan. IDFC’s move is a little perplexing too – as a bank they will want to be in demat business, in brokerage business, in insurance…so why an exit at this time? beats me. Like ILFS this company also seems to be a little confused.

By the way the million Euro question to ask is when will BNP get out of brokerage? and at what price?

See the history of BNP in India, and you will know what I mean …….

http://www.livemint.com/Companies/ry9D7iof9PPJCnST5ztcSO/BNP-Paribas-acquires-Sharekhan.html

 

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  1. Kalyanasundaram Raja

    Sir,

    On reading the news about this new acquisition of BNP, I started to wonder why it has this fixation on brokerage business as it has a solid tie up with Geojit also. IDFC will probably buy the BNP’s stake in Geojit later
    if it exits that marriage. We will have to wait & watch. NPA comment about PNB is appreciated,though out of context here.

  2. IDFC might need capital for Running a bank. IT is difficult to dictate existing customer to go for new bank. It is wise move at his moment. I may be wrong also.

  3. This is a genuine article

    I believe the fixation of brokerages would continue to a point where there would be consolidation
    An example of this form of consolidation is the US market currently barring the hedge funds notable brokerage and investment banking has got consolidated under 2 giants Goldman Sachs and Morgan Stanley.
    Most of the others have literally exit the brokerage and cash, or just restricted to minimal commitments

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