Top brokerages continue to dominate: Largest 25 contribute 54% of volumes

Large entities are increasingly dominating the domestic broking scene. The data shows that the top 25 brokers now account for 54 per cent of trading volume, from 41 per cent only five years earlier. The share of the top 10 brokerages rose from 24 per cent in 2013-14 to 32 per cent in 2017-18. 

The number assumes significance, as there are a little over 2,500 brokerages registered with the Securities and Exchange Board of India (Sebi). Experts said the small ones have not kept pace with  technological change. Also, that recent regulatory changes have favoured the larger ones.  

Market participants say clients are increasingly preferring players that offer the latest trading tools, such as mobile applications and research support. It is estimated that the online share has risen from 20 per cent a few years earlier to 40 per cent now. 

According to the National Stock Exchange data, mobile trades are 7 per cent of total volume. The share increases to as much as 40 per cent if proprietary and institutional trades are excluded. While big players have used their deep pockets to upgrade their trading platform for investors, smaller ones could not. “Upgrading of technology is a costly affair and the majority of smaller brokers will not be able to afford such an overhaul. Small-size brokers have as few as 200-300 clients; it does not make business sense to upgrade,” said a broker. 

According to sector estimates, the value of mobile trades has increased over the past three years to Rs 40 billion (a day) from Rs 3 billion earlier. “Mobile trading has become popular among retail (individual) investors, since a large number of retail trades are intra-day and investors like to place orders while on the move. Bigger brokerages now offer every service, including research help on their mobile platforms, making it convenient for retail investors. Many of these facilities are not available if an investor chooses a smaller broker,” said Kamlesh Rao, MD, Kotak Securities. The tightening of Sebi regulations around brokers has also impacted the smaller ones. In recent years, Sebi has introduced several new rules, including curbs on utilisation of client funds and enhanced risk management measures. Broking is a low margin business and small brokerages derive substantial income from margin lending and using of client funds for proprietary (own) trades. The new rules restrict brokerages from using any client funds. Margin lending has been hit after introduction of the goods and services tax on such transactions.

“The compliance burden on brokers has increased significantly in the past few years, due to measures such as enhanced surveillance, uploading of client ledger balances weekly, etc. On the other hand, the brokerage paid by clients has also reduced, due to cut-throat competition in the sector after the emergence of discount brokers. In such a scenario, smaller brokerages are finding it increasingly difficult to survive,” said Alok Churiwala, managing director, Churiwala Securites.  

The rising popularity of mutual funds among individual investors is also reason for exodus of clients from smaller brokers. Funds’ Systematic Investment Plans attract many, including the salaried class. 

These plans are seeing new inflow of Rs 60 billion every month.