Stock Brokers feel the pinch

Brokerage Stocks were downgraded a few months back by Deutsche Bank. JM Financial, Emkay and Centrum are among the broking firms that have seen a steep decline in their net profits on a sequential basis. Others like Edelweiss Capital, Geojit Financial and India Infoline have witnessed a decline of net profit around 32%, 36% and 18%, respectively, during the same period. The net profit is derived after deducting income from other sources.
The results paint a bleak picture for broking firms. Most of the listed broking firms have reported either a fall in net profit or at best only a marginal rise in their bottomline for the period.
Rising interest cost is pushing up operational costs for most broking outfits even as they are simultaneously faced with declining revenues. Having suffered massive losses during the early part of this year, most retail investors are now reluctant to return.
The plight of the smaller broking companies is even worse, as they are struggling to meet their margin obligations due to liquidity constraints. In October, trading terminals of 95 broker-members were deactivated in the futures and options segment and 29 deactivations occurred in the cash segment. In September, the terminals of 36 broker members were deactivated whereas in August it was only 11. There were 885 active trading members in the F&O segment and 984 in the cash segment on NSE in October.
These woes are reflecting in the stock prices of broking firms. Most of them have fallen more than 75% from their highs early this year. After banking stocks, broking outfits are the next best proxy on the economy. If the macro picture is rosy, invariably stock markets do well.
Source: ET
Posted in  on November 18, 2008 by  |