Move may lead to a fall in the number of empanelled brokerages.
The coming days could see a significant change in the way Life Insurance Corporation of India (LIC), also the country's largest domestic institutional investor, trades in the stock market. It has sought data on research recommendations from all its empanelled brokerages for the past 17 months, from April 1, 2009 till the end of last month.
Brokers that are part of the LIC panel view this move as a precursor to reduction in the number of empanelled brokerages, currently estimated at around 150. Based on the success of the recommendations, LIC could restructure the quantity of trading business among brokerages, they say.
In a letter written a couple of days earlier to all its empanelled brokers, LIC has expressed its intent to review the research recommendations and the relative return of stocks compared to that of the benchmark Sensex. The latest move gains further significance when seen in the light of LIC's recent decision of slashing the brokerage fee from the earlier 15 basis points (bps) to 10 bps.
LIC wants details, including the price of the stock on the date of the report, its current price and the Sensex return. Further, for brokerages that do not have research facilities, the insurance major has demanded an "explanation for the same".
"This is a significant move, based on which LIC could award trading deals in the future," says an institutional dealer with a mid-sized domestic brokerage. "For quite some time, there has been this buzz that LIC would streamline its stock market operations, including bringing down the number of empanelled brokerages. Brokers with a higher success rate in the panel could expect a higher quantity of deals from LIC. Underperformers could see their LIC business dwindling," he added.
Any change in the way LIC distributes its buy/sell orders amongst the panel could impact the bottom line of many brokerages, especially of those for whom LIC is a sizeable client. Many old and small brokerages operate in a very niche segment of rich individuals and a handful of institutions boast of LIC as one of their biggest clients.
In a recent interview with Business Standard, LIC managing director Thomas Mathew pegged this year's equity investment at Rs 60,000 crore. LIC’s total profit last year was Rs 9,432 crore.
According to brokers, the average transaction size for LIC put through by most of the empanelled entities is in the range of Rs 30-40 lakh. For the larger brokerages, the ticket size is around Rs 1 crore, while the biggest of the panel gets trade of a Rs 5 crore ticket size.
