Brokerages fight for survival

Another trader points to the growing use of sophisticated direct market access software, which provides institutional investors with stock-related information. With these programs, investors can make complicated manoeuvres without having to check with their brokers. Smaller brokerages that cannot afford this software end up losing high net worth clients, and are forced to downsize.

The Securities and Exchange Board of India didn’t provide any information on the number of institutional trading desks but traders say there are at least 150 in Mumbai alone.

A trader who received a pink slip recently points to a squeeze in commissions, which have fallen to 0.08%. In 2008, the low was 0.20%. “ You have to double the volume of business for the same returns, and there’s more competition from foreign and local players,” he says.

Rahul Arora, CEO of Nirmal Bang’s institutional equities desk, one of the few that opened in 2010, says consolidation is just starting. “There will be more layoffs and buyouts.”

What’s behind this deluge of pink slips? Brokerages refused to comment. However, Fortune India spoke to several traders who were laid off. They all asked to remain anonymous for fear of jeopardising future employment. “Apart from market conditions, it’s getting harder for domestic players to compete with foreign outfits,” says a senior trader. “When the top 10 brokerages offer the same opinion on a stock, it’s hard to show value. It’s me-too research, which mutual funds and investors can see through.”

In late August, as the markets sank amid a global slump, and foreign institutional investors pulled out $2 billion (Rs 9,208 crore) from India, Centrum Capital laid off research analyst associates from its institutional trading desk.

Tower Capital and Securities tried to enforce a 60% pay cut, which led to half of its staff of 40 resigning in protest. Similarly, India Bulls Securities shelved plans to expand its institutional trading desk, causing its handful of employees to leave. Motilal Oswal Securities laid off at least a 100 employees. Angel Broking and Mangal Keshav have also sacked staff and there’s a hiring freeze at Edelweiss Securities, says a trader.

The most high-profile casualty, Alchemy Share & Stock Brokers, backed by billionaire trader Rakesh Jhunjhunwala, shut down its institutional trading business and is expected to close completely in the next few weeks. Sources on Dalal Street say its office space and other resources are up for sale.

CALL IT THE LAW of the jungle. When disturbances in the ecosystem shake up the food chain, larger animals feel the pain too. It’s the law of the street as well. Over the past six months, stock trading volumes have fallen sharply, financial services sector wages have increased, and trading commissions have withered. Stockbroking houses are slashing budgets, laying off employees, and closing down institutional trading desks.

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