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A sharp rally in the equity market following the outcome of the general elections has rekindled investors' interest in the stock markets.
The number of retail investors, which shrank up to 60 per cent in the last five years and resulted in the shutdown of more than 500 brokerage houses, is likely to see a revival in the brokerage business.
The Sensex has made a significant recovery in the two months since the closing stages of the general elections held in April-May.
Anticipating an increase in retail participation in the coming months due to a stable government at the Centre and dwindling gold prices, brokerage houses in tier-II and tier-III towns are planning to rejig their operations.
V K Joshi and V Kumar, directors of Vikson Securities Private Limited, registered an increase in volume of trade by 1.5 times in the past one month. "With a bull run in equity, dormant accounts are becoming active and plunging gold prices have motivated retail investors to switch to the equity market for higher returns," said Joshi.
"The sluggish market and lukewarm interest of investors in the last four years severely affected the volume of trade in tier-II and tier-III towns. In order to cut costs we were forced to squeeze operations. We put our expansion plans on hold and laid off employees wherever volumes were too low. With retail investors returning and a projection of consistency in the policies of the new government, we are drawing up plans to consolidate our operations at existing locations and expand in new markets," said V Kumar.
Falling turnover had resulted in lay-offs at brokerages, who are now stepping up hiring, predicting higher brokerage margins.
Pranit Maheshwari, the chief operating officer at Arihant Capital Markets Limited, which has operations in central India, feels that the better performance of public sector enterprises has triggered a positive sentiment in the markets and mobilised retail investors.
Stocks from banking, real estate, oil and gas, and the power sector have clocked average cash market turnover more than doubled. At the same time, the combined average daily turnover of F&O (future and options) has registered an increase of almost 90 per cent since the beginning of calendar year 2014.
According to Maheshwari, the market is expecting a prudent revision in the taxes imposed on retail investors in the upcoming Budget. The two major taxes - the securities transaction tax and the service tax on brokerage and transactions - are expected to be cut and this could give an impetus to retail investors.
He explained that his firm had put expansion on hold over the past four years due to the lacklustre performance of the market and the tepid response from trade investors. But now, with foreign institutional investors pumping in substantial funds and the government's statements positive, the markets are likely to perform in a sustainable manner.
"So we are scouting for new locations to ramp up our presence. The Security and Exchange Board of India has been making efforts to increase the participation of retail investors in the equity market in the small towns of India. If the markets perform well, there is big room for brokerage houses. We may increase the head count to support our expansion," Maheshwari added.
