The stock-broking firm controlled by Asia’s richest financier is bringing beleaguered peers from India’s small towns into its fold as the company seeks a larger share in the sector that drew record revenues of $3.5 billion last year., a unit of billionaire Uday Kotak-controlled Kotak Mahindra Group, has onboarded four small brokerages into its platform and is in talks to add another 20, Jaideep Hansraj, chief executive officer of the company said in an interview.
Agencies
The stock-broking firm controlled by Asia’s richest financier is bringing beleaguered peers from India’s small towns into its fold as the company seeks a larger share in the sector that drew record revenues of $3.5 billion last year.
Kotak Securities Ltd., a unit of billionaire Uday Kotak-controlled Kotak Mahindra Group, has onboarded four small brokerages into its platform and is in talks to add another 20, Jaideep Hansraj, chief executive officer of the company said in an interview.
The arrival of low-cost, fintech brokerages has disrupted the sector along with a rapidly changing regulatory framework. Many smaller firms are being forced to shut shops or merge into bigger ones amid a retail trading frenzy that is driving revenues to a record high in India.
“A lot of brokers from smaller cities don’t have the financial wherewithal, technology, compliance processes, and legal talent required to meet tightening norms prescribed by the regulator and exchanges,” said Hansraj.
Like its peers, Kotak Securities offers these brokers an opportunity to tie up with larger and more established names, which provides an alternative to closing shop.
Agencies
Zerodha Broking Ltd. and similar Robinhood-like online brokers have shot past traditional brokers like ICICI Securities Ltd. and Kotak Securities in the highly competitive sector. While deep-pocketed brokerages are trying to adapt and compete with the slick, mobile-friendly platforms and rock-bottom commissions, smaller peers have been feeling the pinch.
ICRA Ltd., the local arm of Moody’s Investors Service Inc., said it expects revenues for the broking industry to grow at 5%-7% in the financial year to March 2023. That is down from 28%-33% annual growth seen in the previous year, the rater said in March, as financial conditions tighten and markets witness increased volatility.
Besides, the Securities and Exchange Board of India, the nation’s market regulator, has tightened margin norms for brokers in the past three years to weed out risk for retail investors. Past practices like using the margin of one client for another, or putting in brokers own money, are no longer allowed. On top of this, the latest guidelines from regulators require brokers to collect 50% of margins from clients in cash.
As a result, more than 130 brokers with the BSE Ltd. and 122 on the National Stock Exchange of India Ltd. returned their permits in the last three financial years, the latest data from the bourses show.
Thirty-year-old PCS Securities Ltd. is among the brokers who are returning their permits and moving clients to Kotak.
“I think it will become difficult for mid-size and small brokers to survive,” Paresh Shah, whole-time director at Hyderabad-based PCS Securities said. “Sooner or later, other smaller and regional brokerage will chose this path.”
When they choose that path, smaller brokers, while retaining their brand names, will become sub-brokers and earn a percentage of the overall business. The clients belonging to the smaller brokers, though, will be transferred to the platform of the larger brokerage.
Agencies
With increased retail participation and dwindling pricing power, “slowly this business is becoming economies of scale. Whenever any business reaches economies of scale, 90% of the business is concentrated with the top five or ten,” Suresh Shukla, joint president at Kotak Securities, said.
Agencies
Agencies
Get Unlimited Access to The Economic Times
