Small brokerages find going tough

Small broking firms are losing their market share to large brokerages and as a result, several of them have been forced to exit the market.

Experts see smaller players fading away in the coming years, either by merging with big players or shutting shop.

The market share of the top five brokerages on the National Stock Exchange (NSE) rose from 12 per cent in 2003-04 to about 15 per cent in 2006-07. Similarly, the market share of the top 10 brokers on the NSE grew from about 17 per cent to 24 per cent in the same period. According to data available with the BSE, the top 10 volume drivers during last year were Angel Broking, BLB Ltd, CLSA India, DSP Merrill Lynch, HJ Securities, JM Morgan Stanley, Kotak Securities, Motilal Oswal, Sam Global Securities and Sharekhan.

Motilal Oswal Securities, one of the leading players in financial services space, had acquired three broking firms in 2006. It acquired Uttar Pradesh-based Mani Stock and Brokers, Bangalore-based Capital Deal and Kerala-based Peninsular Capital Markets. During the IPO launch of the company, its chairman Motilal Oswal said, "We are looking at further consolidating our position through the organic route "� through geographical expansion and increased customer base"

Now on the block is on behalf of Mahshri Enterprises. Khandwala Securities is acquiring Aryaman Financial Services through an open offer. Though Aryaman Financial Services is listed on the BSE, the Delhi Stock Exchange and the Ahmedabad Stock Exchange, the company has not been doing much of business. Its annualised trading turnover was just 4.35 per cent on the BSE.

Darshan Mehta, CEO of Anagram Securities, said, "Top firms have technology, quality research and better distribution channels, and they can survive even during volatility due to their risk management tools. But smaller players fail to even make margin payments to the exchanges during downturn in the market and their trading terminals are closed down." He added that the fate of the smaller players would become more or less like the regional stock exchanges. "The only scope left for them is to act as sub-brokers or franchisees. A more sensible move is to dilute the stake to larger firms," Mehta added.

"The wind is in favour of consolidation," said Dinesh Thakkar, managing director, Angel Broking. "Earlier availability of funds was a major issue for the brokerages, but with PE funds, this problem is now solved. There used to be uniform transaction tax by the Sebi for new entities, but now it has been reduced to around 0.001 per cent," he added.