Small brokerages shut shop as times change
Jul 03 2014
Dalal Street veteran Parag Parikh, known for his behavioural finance approach to investing, is the latest to shut down his stockbroking operation, that started in the mid-1980s.
Parag Parikh Financial Advisory Services (PPFAS) has surrendered its licence in both the Bombay Stock Exchange and the National Stock Exchange (NSE).
“We have closed down our broking business as it is not a big revenue earner for us. We are now focusing more on the investment management side of business,” said Rajeev Thakkar, director of the firm.
“Earlier when we were running portfolio management services, we had individual client accounts and trades were done separately. At that time, the broking outfit facilitated the investment management in trade execution,” he added.
As PPFAS is now working in the mutual fund structure, there is no point in keeping the broking operations active, he added.
According to Sebi the total number of brokers in Indian cash market declined to 9,150 in 2013 from 9,195 in December 2012.
Sebi data shows number of sub-brokers too fell dramatically, with over 22,317 sub-brokers shutting shop last year. However, the number of equity derivative brokers saw a rise from 2,614 to 3,072.
Avinash Gupta, senior director at Deloitte India financial advisory said, “Pure cash broking doesn’t make money any more as one needs a proper set-up, technology, capital and premises to run a broking firm.”
The days of traditional brokers are over as they are not able to compete with large players who offer a whole bouquet of services. Falling cash market volumes and entry of more sophisticated trading mechanisms like algorithm trading have forced many traditional brokers out of the broking and jobbing business.
“While big trading platforms offered by large players are able to bundle services together, cost keeps increasing for standalone broking firms. One has to offer something else like research, some unique offers to stay relevant. Also, now there are online brokers who are ready to service clients at much cheaper rates, so the days of traditional brokers are over,” Gupta said.
Primary market offerings through IPOs have also come down. In 2012 and 2013, primary market offerings amounted to just Rs 7,425 crore and Rs 10,261 crore as against Rs 57,617 crore in 2010-11 and Rs 54,000 crore in 2009-10.