Brokerage industry-trends and growth strategy

Abstract

A bird’s eye view on brokerage business reveals a dormant industry where players are settled. But a closer look would reveal a different picture where different players in the industry are trying to capture and retain the share of this business. With growth of middle class, increased disposable income will find its way to Indian equity markets. Apart from this growth driver, development of derivative market, increased capital access, margin funding and ease and convenience provided by electronic trading will result in increased volume on bourses resulting in more business for different players. Analysis of current trend reveals that industry has commoditized resulting in price war and consolidation. Shift of trading volume towards option, strict compliance requirements have put downward pressure on bottom-line. There’s increased focus on developing professional outlook, developing interactive online platform. In order to differentiate themselves various players are offering value added services which aim at improving client experience and diversifying the revenue. Research reports, PMS facility and wealth management services are being offered to high potential clients. Customer analysis shows that majority of the current active investors are located in Maharashtra and Gujarat but future lies in tier-2 and tier-3 cities. Among various customers, diamond trader, manufacturer-exporters, doctors and PSU executives are aggressively targeted. Companies rely on sub-broker, direct sales and branches to cater to many conventional clients who are not comfortable online. Retail penetration of equity is quite low indicating huge untapped market. Thus, there is an increased focus to develop the segment through various seminar and investment forums. The positioning of various players is based on their competitive advantage. Motilal Oswal leverages its brand name in attracting a new sub-broker whereas new player like Edelweiss are focusing on quality research and professionalism. Banks-cum brokers (ICICIDirect etc) offer the facility of seamless trade through its trinity account offering whereas Reliance money compete on price. Though there is huge potential in the industry, players will need to focus on better risk management systems and will have to diversify their revenue stream to de-couple themselves from market volatility. Going forward, brokerages houses should position themselves as one stop shop for all financial need and develop a fee based model to sustain during downturn. Thus, proactive player will ride the growth story to become winners of Tomorrow while other will be a footnote in history of rapidly changing financial services world