People outside the financial industry may not realise the ails of the industry! Let us look at the brokerage industry. Not long ago – circa 199o even until 1999, brokerage rates were falling but still was about 2% per transactions. Then the corporate sector war started – chasing the top line to come out with a public issue! So brokerage rates dropped – if you click on one of the ads that appear on this blog you will get ‘delivery’ brokerage rates of 0.15 – a far cry from the peak of 2.5% that we have charged in the 1980s and even in the 1990s.

The bigger players reduced broking to a pure trading game – imagine if you were earning 2.5% (and are now earning 0.25%) you need the same client to do 10 times the business to be where you are. This is not just tough, it is almost impossible if he is an investor. Even for a trader the brokerage rates have fallen and he has to perhaps do 15 times as much business. This means if all the brokers in the country have to make money the cash market has to be at 15 lakh crores volume…we are really far away.

Also clients do not like to pay brokerage. If they see a transaction with say Rs. 80,000 as brokerage – he will just say ‘aadha kar do, na’ ..and it happens! Salaries, rent, other expenses are all doubling every 3 years. Turnover is also increasing, but the revenues that the brokerages touched even in 2006-7 is now difficult to achieve..and the more aggressive techniques hurt more 🙂

The industry is to be blamed partially – they made the business very glamorous, has almost zero entry barrier, a few clients together buy a card – because it is better to boast in a cocktail party,…and more importantly they had turned to a game…of buying and selling every 15 minutes. All this now hurt the industry which is grinning and bearing it…well there is no choice but to wait for the shake out, which is refusing to happen!

So keeping fingers crossed……Amen!