The broking houses currently face challenging times. Their profits are expected to nearly halve in 2011-12 compared to the previous year due to a combination of structural changes in the business environment, and slowdown in capital market activity, the report says.
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The structural shifts in business include a distinct shift in trading pattern towards low-yield derivatives, increase in algorithmic trading, and intensifying competition from foreign players in institutional broking.
Moreover, on account of slowdown in the capital markets, retail investor participation and capital-raising have reduced considerably. Due to some of these fundamental changes in business, the pressure on broking houses during the current downturn will be more prolonged than in the previous one in 2008-09, the report added.
Ramraj Pai, director of CRISIL Ratings said, "Broking houses have already begun responding to these challenges by reinventing their strategies. In their core business, they have been realigning cost structures, and focusing on superior and differentiated services. Diversification is another strategy-with players entering new businesses such as asset and wealth management, retail lending, and insurance."
According to the report, the lending books of the large broking houses are expected to triple by March 2013, particularly in two key segments — loans against property and gold loans; these segments will constitute around 45% of the book by March 2013.
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By GlobalDataAccording to CRISIL, the retail lending book of these brokers is set to triple and will amount to nearly INR300 billion by end-March 2013, from the March 2010 level.
