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Old-time family-owned brokerages are under threat of shutting their institutional business.
To put matters in perspective, the top five brokers corner around 75-80 per cent of institutional brokerage; another 8 -10 brokers who distribute mutual funds and insurance products receive around 10 per cent share. The remaining brokers fight it out for the residual 10 per cent share.
Banks – both Indian and foreign – are under internal pressure to give business only to their own broking arms.
Algorithm trading has compounded the problem further as the brokerage charged here is less than conventional brokerage.
More institutional investors are punting on which way the size of the spread between cash and futures would move in order to make money. This makes for a single order execution which shrinks brokerage. (Earlier cash-futures arbitrage meant execution of more than one order, generating more brokerage).
Client retention is also becoming difficult for the family-managed brokers. Those in the trade observe that the quality of analysts is not up to the mark if one moved below the A category brokerages.
Some brokers have done replacement hiring for the research team but that has not worked out either.
Family managed broking outfits are not able to maintain the clientele of their earlier generation.
With DII business reducing and FII business not growing it's only a matter of time when the number of brokers in this business halves.
raghavendrarao.k@thehindu.co.in
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