Brokers chafe at puny public issue margins

Brokers and other IPO distribution houses are unhappy about the small margins they are getting for hawking the share issues of government undertakings.

Though brokers' margins have been falling all through last year, they are particularly low in the current round of big-ticket flotations.

Rajendra Naik, managing director, Centrumdirect Ltd, a brokerage cum distribution house, says, "Brokerage have come down to as low as 0.1 to 0.2 per cent for selling public sector disinvestment issues."

He adds that the normally the brokerage hovers around the 0.5 to 0.6 per cent mark in big book-built issues and can go up to 1.25 per cent for fixed price IPOs.

The Securities and Exchange Board of India (Sebi) has fixed an upper cap of 1.5 per cent of issue size on brokerage fees.

Ambreesh Baliga, vice president, private client group, Karvy Stock Broking, said, the brokerage fees have come down and is very much evident from the fact that the case of IPCL issue, the brokerage houses have not passed on the incentives on applications made through them.

Fixed-price IPOs are sold by almost all brokerages, while book-built IPOs are sold by the book-building lead managers, syndicate members and sub-syndicate members.

Typically, the distribution channel consists of a few big brokerages such as Enam, ICICIdirect, Kotak Securities, Karvy, Bajaj Capital and Centrum.

They, in turn, have their own direct sales team that targets their customer base besides having a strong sub-broker base has its own customers.

Some big brokerages also have franchisees through whom they target the retail customer. Besides there are a number of smaller regional distributors.

Naik adds that Centrum has more than 100 direct sales staff across the country selling IPOs besides having over 3,000 sub-brokers and franchisees.

He says that they make presentations to individuals as well as groups educating them about the companies. The idea is to reach as many small retail customers as possible, he says.