Broking firms feel strain
Report lower profits in December quarter.
Our Bureau
Mumbai, Jan. 27 The trend of declining profits for the broking and financial
services industry appears to be continuing into the third quarter of the
current fiscal.
The profits of most brokers have declined or gone up marginally during the
quarter. Markets have fallen by more than 26 per cent during this quarter and
the turnover has dipped 45 per cent on a year-on-year basis.
The share prices of listed broking firms have shed close to 40 per cent during
this quarter.
Poor Numbers
Motilal Oswal posted a 62 per cent dip in consolidated net profits on a
year-on-year basis to Rs 20.4 crore. Geojit Financial Services reported a 74
per cent increase in net profit due to extraordinary gains of Rs 40 crore.
Excluding this gain, the company recorded a net loss of Rs 1.08 crore.
Edelweiss' profits dropped 57 per cent to Rs 38 crore during this period.
Indiabulls Financial Services and India Infoline reported profit dips of 57 per
cent and 54 per cent, respectively.
Analysts have been advising investors to reduce exposure to broking firms.
Deutsche Bank has "reiterated sell on India Infoline and Edelweiss".
"Edelweiss is likely to face several headwinds in the form of declining volumes
and brokerage yields, lower returns from arbitrage business and a high leverage
resulting in inferior earnings growth and return ratios," stated the Deutsche
Bank report. It also stated that an undiversified business model makes it the
most "vulnerable to capital market downturns".
About India Infoline, the report stated that a substantial portion of the
company's revenues comes from capital market-related activities.
It is not surprising that the income from broking related activities of the
firms have fallen. And also with the primary market remaining dormant
throughout the December quarter, those firms involved in the investment banking
space have suffered huge declines in their revenues from investment banking
activities.
"Many of the investment banking deals, which could have been booked in Q3, are
likely to be delayed," stated a Keynote Capital Research report on Motilal
Oswal, adding that some might not materialise.
Reliance Capital managed to buck this trend as it made a 11 per cent jump in
profit to Rs 131.5 crore, thanks to Reliance Money.
Mr Sudip Bandyopadhyay, Director and CEO of RMoney, said that company was able
to report higher profits because of multiple revenue streams. "Only about 50
per cent of our revenue comes from broking related services. We have other
businesses like wealth management, portfolio management, money transfer,
currency exchange, gold, etc."
Tough for now
Marketmen said that it will be tough for the broking firms for another two to
three quarters. "The first month of the current quarter has seen very low
volumes. The next two months are going to be the same and the election month
will be tough. Global cues are not looking good either," Mr Divyesh Shah, CEO,
Indiabulls Securities, said.
Volumes will pick up by the fourth quarter of the next fiscal, said Mr C.J.
George, Managing Director of Geojit Financial Services.
To cope with the financial crisis, broking firms are tightening their belts. Mr
Shah said that Indiabulls Securities is not doing anything aggressively now,
and is looking at consolidating businesses.
Some firms such as Geojit have put expansion plans on hold, which includes
hiring personnel. Even if firms are hiring, it is at the sales level and not
for broking related businesses
http://www.thehindubusinessline.com/2009/01/28/stories/2009012851471000.htm
ekamber
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