Fii Brokerages Elbowing Out Domestic Houses

The stock broking business is witnessing a further upheaval as foreign brokerages dominate the trading activity on bourses. According to leading brokers, most of the delivery-based volumes are routed through foreign brokerages due to the hectic trading activity by foreign institutional investors.

While the share of each brokerage in making up the pie is not available, market sources indicate that a significant number of big trades are routed through FII brokerages like Credit Lyonnais Securities, Jardine Fleming Broking, Union Bank of Switzerland (UBS), Morgan Stanley Securities, W I Carr, Peregrine Securities, HSBC Batlivala & Karani and DSP Merrill Lynch.

Local institutional brokerage firms like Kotak Securities, Dalal & Broacha, SSKI, JM Share and Stock Brokers have lost their traditional FII clients to these brokers.

 

Besides, the change is significant in the brokers panels of leading financial institutions like the Unit Trust of India which indicates that more foreign brokers are being included in the panel for investment in the capital market.

According to top level UTI officials, the change has been necessitated due to quick buyers that foreign brokerages can get for these institutions under redemption pressures. "Our business is widely distributed among several brokers. However, when it comes to selling under redemption pressures, we do consider foreign brokerages for getting the right price. For buying, it can be given to everybody," commented a senior UTI official involved in its secondary market operations.

Mihir Doshi, executive director, Morgan Stanley Securities feels that the delivery-based volume is dominated by foreign brokers. However, he opines that the prime factor is the lesser activity by domestic institutions. "It is true that foreign brokerages have got a significant representation in the delivery based institutional business. This is primarily due to increased FII activity and a lesser activity by domestic institutions and mutual funds," he told Business Standard.

W I Carr managing director Brian Brown feels that his brokerage has infused funds for aggressive client servicing. "The change has come about because we are aggressively servicing our clients abroad interested in investing in India by introducing them to the company, organising meetings with managements and providing extensive research. The business in India is certainly growing but there is a room for everyone," he said.

The same level of capital infusion would become a necessity for local brokerages if they have to sustain the competition.

Nilesh Dalal, director at Dalal & Broacha, feels that they have sustained their share in the domestic institutional business pie. However, they have certainly changed their approach towards the business to achieve that. "There are too many players in the market as brokerage rates have come down significantly. We have lost our FII clients to foreign brokerages. However, we have managed to sustain our share in the domestic institutional pie. The days are gone when we used to just sit in our offices and get business from financial institutions. Now, we have to go out and market ourselves to get the same share," he commented.

Dalal also brought the issue of mutual funds not being aggressive in the market. Brokers say that institutions like IDBI have already setout networth criteria in a circular issued earlier for brokers to be eligible on their investment panel. The Life Insurance Corporation is yet to work it out.

A top level LIC source said LIC does not have foreign brokers on its panel yet. However, brokers feel that the same is unlikely to continue for a long time. We do not get involved in off market deals. Therefore, the panel of brokers who transact for us has not changed significantly," said the source.