Market tremors rock brokerages, profits dip

Motilal Oswal Financial Services40.7 Geojit Financial Services 31.0 Edelweiss Capital 22.8  The spokesperson for Edelweiss Capital could not be reached to verify whether the company has made any provisions for this quarter.  Slowly but steadily, the downgrades have also begun to trickle in as analysts try to cope with the correction in the stock prices. Citigroup has downgraded MOFSL, citing "subdued capital markets to weigh on brokerage stocks". MOFSL's profits were 11 per cent below Citigroup's estimates.  Citi has also downgraded Edelweiss Capital since its gross revenues were 25 per cent below analysts' expectations. Edelweiss's volumes were down 26 per cent, slightly higher than the industry, said the Citi report.  Kochi-based broking house, Geojit Financial Services has also posted a net profit of Rs 7.1 crore in this quarter, down 31 per cent from its profit in the last quarter. "Even this quarter would be muted as far as earnings of brokerages are concerned as the investor sentiment towards stock markets is lacklustre due to both global and domestic uncertainties. However, we estimate the fourth quarter of this financial year to be better for the markets," said C J George, managing director of Geojit. The company has also made a provision of Rs 1 crore on likely bad debts arising out of client defaults this quarter.  Brokers are coping with the downturn through cost-cutting measures and getting into new businesses. For instance, Edelweiss has resorted to sharp cost-cutting. The broking house's operating costs declined 55 per cent q-o-q, which provides it greater cost flexibility, according to the report.  Indiabulls Securities (ISL) plans to diversify its revenue base by setting up various businesses such as portfolio management services (PMS), investment banking, insurance and mutual fund distribution in the next quarter. Currently, all the revenues of ISL come from broking and once these businesses have been set up, it would have about 70 per cent revenues through broking, said the company's chief executive officer Divyesh Shah.  The market has fallen more than 30 per cent since its peak in January, accompanied by a drastic fall in volumes. Last quarter, a series of brokerages, including Edelweiss Capital, Religare Enterprises, Prime Securities and JM Financial, had announced provisioning for losses arising out of funding to high networth individuals (HNIs) and corporate bodies during the fourth quarter of 2007-08.