11-10-2012, 12:41 PM
BROKING INDUSTRIES
BROKING.docx (Size: 197.02 KB / Downloads: 59)
India Brokerage Industry
India has witnessed a consistently strong growth of over 7%+ over the past 5 years. This, along with the conducive regulatory environment, has attracted foreign investors to India. The number of FIIs registered in India has increased to 1711 in April 2010 from 513 in 2003. Increasing foreign participation has been significantly positive for capital market intermediaries in India. FY09 remained a lackluster year, with FII being net sellers for ~US$10bn. Retail investors’ participation also remained low during FY09, which impacted performance of capital market intermediaries. With Indian economy moving on an up cycle during FY10, FIIs infused ~$20bn in Indian capital markets, and retail participation also improved through insurance and mutual fund route. Corporate fund raising activity (through QIPs, IPO, and debt syndication) has also gained momentum during FY10. This has aided capital market intermediaries' fee-income. The secondary capital market volumes clocked a growth of 60% yoy to Rs. 978bn (annual average) during FY10 from Rs609bn in FY09. Presently close to 77% of the capital market volumes comprise of F&O volumes as compared to 61% in FY05. Change in the capital market volume mix has tempered market share of top 10 capital market intermediaries during FY10. Moreover, lower delivery volumes in the cash segment have impacted brokerage yields during FY10.We opine that the market share of most of the capital market intermediaries will remain under pressure going forward. With increased competition, brokerage yields are expected to remain flat despite higher focus of the intermediaries on the cash segment. We have assumed a 15% CAGR over FY11-12 in capital market volumes from current average of Rs 978bn. Operating cost of capital market intermediaries is largely variable in nature. Cost effective distribution model - franchisee and online trading through portals also helps in keeping a check on operating cost. And, thus operating and net profit margins are likely to remain stable. Post recent correction stock prices of capital market intermediaries are trading at significant discount to the benchmark index valuations. The valuations at the current level appear attractive and therefore we are initiating coverage on India Infoline with a BUY recommendation, while valuations for Edelweiss Capital and Motilal Oswal appear rich and therefore we recommend accumulating the stock on declines
Market overviews and expectations
We expect stock market volumes to grow at 15% CAGR over FY10-12.
In the wake of global financial market turmoil, Indian stock markets remained subdued during FY09, clocking de-growth in overall volumes of 15%. Revival in economic activity and improving Indian corporate performance has abetted capital market rally during FY10. The overall stock market volumes grew by 61% in FY10. Strong growth in capital market volumes was largely driven by F&O volumes, which comprise of 77% of the total volumes and have grown at 66% CAGR over FY05-10 as compared to overall capital market CAGR of 55%.A strong expected economic growth (nominal) of 14.5% in FY11 and 15% in FY12 is expected to lead to a healthy growth in household financing savings. This, along with an expected rise in FII investments, will be the key driver for capital market volumes. We expect the overall stock market volumes to grow at a CAGR of 15% during FY10-12; the same has been factored in our working for the companies to arrive at the fair price target for the stocks.
Strengths
Huge market potential given the under-penetration of equities as an investment avenue amongst Indian investor community and an increasing investor interest in new market segments like Commodities, currency futures, interest rate derivatives.
Adequate capitalization levels, at least for larger players provides cushion to absorb potential losses Resulting from the short term challenges in the operating environment.
A relatively diversified revenue profile at least for the larger players.
A more flexible cost structure arising from the increasing reliance on franchisee model.
Challenges
Protecting brokerage yields and market share in the highly competitive and fragmented equity brokerage industry; further accentuated by the rising share of the low yielding options segment.
Volatility in earnings and profitability due to linkages with vagaries of capital market and increasing cost of regulatory compliances.
Achieving a critical scale of operations and managing costs to sustain profitability even in a prolonged dull phase.
Managing the inherent refinancing risk as players scale up capital market funding book.
Continue investing in upgrading the risk management systems and monitoring policies to mitigate associated risks, especially during periods of extreme market volatility
Scaling up the non broking business lines to diversify revenue streams while containing risks.
Greater dominance of the foreign brokerage houses in the institutional broking segment
STOCK MARKET
The term ‘the stock market’ is a concept for the mechanism that enables the trading of company stocks, other securities, and derivatives. The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organization) specialized in the business of bringing buyers and sellers of stocks and securities together.
Equity/Share: Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs. 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs. 10 is called a share. Thus, the company then is said to have20, 00,000 equity share of Rs 10 each. The holders of such shares are members of the company and have voting rights. There are now stock markets in virtually every developed and most developing economy, with the world’s biggest being in the United States, UK, Germany, France, India and Japan
STOCK EXCHANGE:
Role of stock in buying and selling shares
The stock exchanges in India under the supervision of the regulatory Authority, the securities and exchange board of India (SEBI) provide A trading platform buyers and sellers can meet to transact in Securities. The trading platform provided by NSE is an electronic one and there is no need for buyers and sellers to meet at of physical locations in trade. They through the computerized trading screens available with NSE. Trading members or the internet based trading facility provided by the trading member of NSE.
NSE:
NSE located in Bombay in Indians first debt market. It was set up in 1993 to encourage stock exchange uniform through system modernizations and competition it opened for trading in mid 1994.it was recently accorded recognition as a stock exchange by the department of company affairs. The instrument traded is treasury bills, government securities and bonds issued by public sector companies.
BSE:
Bombay stock exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as BSE. It was established as “The Native Share &Stock Brokers Association” in 1875. It is the first stock exchange in the country to obtain permanent recognition in1956. From the govt. of India under the securities contracts (regulation) act 1956. The exchanges pivotal and pre-eminent role in the development of the capital market is widely recognized and its index, Sensex is tracked worldwide. The Exchange has a nation-wide reach with reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-05 the trading volumes on the exchange showed robust growth.
Market Players
The company is facing the competition from local as well as national levelplayers. The local players provide facility for off-line trading while the national players like icicidirectcom and kotakstreet.com, hdfc security provideonline trading services.Some of them as given below
Share khan:
India’s leading stock broker is the retail arm of Sski and offers you depository services and trade execution facilities for equities, derivatives andcommodities backed with investment advice tempered by decades of broking experience. A research and analysis team is constantly working to track performance and trends. That’s why share khan has the trading products, which are having one of the highest success rates in the industry. Share khan is having 240 share shops in 110 cities; the largest chain of retail share shops in India is of sharekhan.in future, share khan is planning to enter in mutual funds, insurance sector and banking sector to expand beyond the market currently covered by it. And it has started mf (mutual funds) on priority basis but wants to grow in it.
INDIA BULLS
India bulls are India's leading retail financial services company with 77 locations spread across 64 cities. Its size and strong balance sheet allows providing varied products and services at very attractive prices, our over 750 Client Relationship Managers are dedicated to serving your unique needs. India bulls are lead by a highly regarded management team that has invested crores of rupees into a world class Infrastructure that provides real-time service & 24/7 access to all information and products.
The India bulls Professional Network offers real-time prices, detailed data and news, intelligent analytics, and electronic trading capabilities, right at your finger-tips. This powerful technology is complemented by our knowledgeable and customer focused Relationship Managers. India bulls offer a full range of financial services and products ranging from Equities, Derivatives, Demat services and Insurance to enhance wealth and to achieve the financial goals.
HDFC SECURITIES LTD(hdfcsec):
HDFC securities is a brand brought to you by HDFC Securities Ltd, which has been promoted by the HDFC Bank & HDFC with the objective of providing the diverse customer base of the HDFC Group and other investors a capability to transact in thestock Exchanges & other financial market transactions. The services comprise online buying and selling of equity shares on the National Stock Exchange (NSE).Buying and selling of select corporate debt and government securities on the nse would be introduced in a subsequent phase. In a few months, they will also start offering the following online trading services on the BSE and NSE:1. Buying and selling of shares on the BSE2. Arbitrage between NSE & BSE3. Trading in Derivatives on the NSE4. Margin trading products. They are also planning to include buying and selling of Mutual Funds, iposubscriptions, Right issues, purchase of Insurance policies and asset financing
UTI SECURITIES LTD.: (UTISEL)
UTI Securities Ltd was incorporated on June 24, 1994 by Unit Trust of India as a 100% subsidiary and on the repealing of the UTI Act, the capital is now held by the administrator of the Specified Undertaking of Unit Trust of India (ASUUTI). Uti securities has been working as an independent professional entity for providing financial intermediary and advisory services to its corporate and retail clientele
The Company has presence in major cities with 20 branches and 50 franchisees to service a wide range of clients. The company has also invested in the joint-venture company with Standard Chartered Bank viz.