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Indian broking industry analysis With respect to “NIRMAL BANG SECURITIES”
SUBMITTED BY: Ms. JAS PREET KAUR 2010 C-20 FINANCE
This report analyzes the Indian retail brokerage industry taking into account the health of the capital markets and the intensity of competition among the brokerage companies. Michael Porter's Five Forces Analysis has been employed to present a picture to gain an understanding of the competitive landscape and industry attractiveness. . The major growth drivers for brokerage revenue and trading volume are: • Continuous fall in brokerage fees • Adoption of technology — screen-based trading, electronic matching, and paperless • securities • Centralized operations, effective risk management, and control on large interconnected operations spanning multiple locations, which is enabled by telecom connectivity and low costs • Increasing access to capital and the ability to provide margin finance Though the Indian brokerage industry has been consolidating steadily over the last 10 years, the share of the top 10 brokers has risen to only around one-fourth of the total industry revenues. In this fragmented market, leading players like ICICI Direct, Kotak Securities, Indiabulls, Sharekhan, and 5 Paisa, apart from many small players, compete on the basis of low brokerage fees and customer service Buoyed by the bullish Indian stock market, foreign banks such as Société Générale (SocGen), BNP Paribas, Standard Chartered, and Macquarie Bank (Australia) are eyeing stakes in Indian retail brokerages.
14 PORTERS FIVE FORCE MODEL……………………………………17 PESTEL ANALYSIS……………………………………………………19 REFERENCE……………………………………………………………21 3 .... THE INDIAN SCENARIO…………………………………………..7.CONTENTS INTRODUCTION………………………………………………………4 GLOBAL SCENARIO…………………………………………………6. NIRMAL BANG………………………………………………………11 MAJOR PLAYERS……………………………………………………12 SWOT ANALYSIS…………………………………………………….
4 . the industry has found its way towards sustainable growth. Faster and efficient securities settlement system is an important ingredient of a successful stock market. A new set of economic and financial sector reforms that began in the early 1990s gave further impetus to the growth of the stock markets in India. being run on no-profit basis. NSE was incorporated in Nov 1992 as a tax paying company. The research is for the purpose of gaining a deeper understanding about the role of the Indian stock broking industry in the country’s economy. Market abuses in securities and banking markets in 1991 and 2001 that led to extensive investigations by two respective Joint Parliamentary Committees. 1992. The Securities and Exchange Board of India (SEBI). greater transparency in price discovery and process driven operations that had significant bearing on further growth of the stock markets in India. Following the recommendations of the High Powered Study Group on Establishment of New Stock Exchanges. the National Stock Exchange of India (NSE) was promoted by financial institutions with an aim to provide access to investors all over the country.Financial services and brokerage houses in India: An introduction: Overview The Indian broking industry is one of the oldest trading industries that has been around even before the establishment of the BSE in 1875. It commenced operations in wholesale debt segment in Jun 1994 and capital market segment (equities) in Nov1994. The Depositories Act 1996 was passed that allowed for dematerialisation (and rematerialisation) of securities in depositories and the transfer of securities through electronic book entry. the first of such stock exchanges in India. Despite passing through a number of changes in the post liberalisation period. NSE was recognized as a stock exchange under the Securities Contracts (Regulations) Act 1956 in Apr 1993. electronic trading. with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies. which created a surge in retail investing. was given statutory powers with the enactment of the SEBI Act. The broad objectives of the SEBI include • to protect the interests of the investors in securities • to promote the development of securities markets and to regulate the securities markets The scope and functioning of the SEBI has greatly expanded with the rapid growth of securities markets in India in the last fifteen years. which was set up in 1988 as an administrative arrangement. it became imperative to strengthen the role of the capital markets that could play an important role inefficient mobilisation and allocation of financial resources to the real economy. Beginning of a new equity culture A new phase in the Indian stock markets began in the 1970s. As a part of the reform process. since stock exchanges earlier were trusts. The setting up of the National Stock Exchange brought to Indian capital markets several innovations and modern practices and procedures such as nationwide trading network. The early 1980s witnessed another surge in stock markets when major companies such as Reliance accessed equity markets for resource mobilisation that evinced huge interest from retail investors. To speed the securities settlement process.
Product expansion took place in a speedy manner. Deutsche Borse and Singapore Stock Exchange bought equity in the Bombay Stock Exchange Ltd. Foreign institutions took stake in India’stwo leading domestic stock exchanges. opportunities in trading of derivatives in futures and options in index and stocks. ETFs are showing gradual growth. Rapid Growth The last decade has been exceptionally good for the stock markets in India. Within five years of introduction of derivatives. stock markets in India have showed phenomenal growth in the early Investor base continued to grow from domestic and international markets. Stock exchange reforms brought in professional management separating conflicts of interest between brokers as owners of the exchanges and traders/dealers. Central Depository Services (India) Limited promoted by Bombay Stock Exchange and other financial institutions came into being. Regulations governing selection of various types of market intermediaries as depository participations were made. Subsequently. Indian stock markets now are ranked first in stock futures and fourth in index futures. In the back of wide ranging reforms in regulation and market practice as also the growing participation of foreign institutional investment. Indian equity markets now offer. commenced operations in Oct 1996. Risk management became robust reducing the recurrence of payment defaults. Global Equity Markets: 5 . While NYSE Group led consortium took stake in the National Stock Exchange. in addition to trading in equities.The National Securities Depository Limited (NSDL) set up by leading financial institutions.
WEO 2010). According to the World Economic Outlook (WEO) April 2010. and fears of coercive bankruptcies and insolvencies. with annualized returns of 30%+ and trading turnover CAGRs of 40. EME equities outperformed the developed markets in terms of volatilityadjusted returns after the fall of 2008. The tremors of the financial crisis were felt in the emerging market economies (EMEs) as well. characterised by financial crisis at the epicentre.Global recovery is proceeding better than expected. but strong in emerging and developing countries. Growth has been tepid in advanced economies. The accommodative monetary policy stance by the regulators globally with near zero rates resulted in investors shifting precautionary cash portfolios toward riskier asset classes. Net capital inflows picked up in EMEs. The financial turmoil occurred after years of robust growth with the world economy plunging into a phase of deterioration. including India. The situation first surfaced in early 2007 with rising defaults in the US housing market. with EMEs displaying stronger growth than their counterparts in the advanced world. banks and financial institutions experienced erosion of their capital base. have been reduced to US$ 2. Post turmoil recovery in 2010 From 2009 onward. crash in the financial markets. estimates of write-downs in the banking system of economies. The global economy was pushed to the edge of a major economic slowdown. the global equity markets have experienced a sharp pullback following the lows after Oct 2008.3 trn from US$ 2. and eventually it escalated into a full-blown global maelstrom in the subsequent year. The crisis has brought about change in perceptions about risk and return in EMEs vis-à-vis the developed markets. Owing to accumulating mark-to-market losses. the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) ranked 4th and 8th globally in terms of cash market trading intensity in 2007. including India. Economies across the world were affected by the consequent credit crunch. The financial crisis made its worst impact when Lehman Brothers. one of the largest investment banks in the US.7% and 97. in particular. This reflected on the risk appetite of investors and portfolio reallocation by funds globally toward riskier assets. filed for bankruptcy. due to their strong macroeconomic fundamentals and robust growth prospects. These countries experienced a sudden stop and reversal of capital flows during the crisis as a consequence of global deleveraging. Hedge funds and mutual funds. The rippling effects of the turmoil orchestrated a near collapse of giant multinationals and a massive crash of capital markets all over the world. which was way above the 42-56% gains recorded by the US stocks (World Economic Outlook. Growth varied across economies. faced huge redemptions as investors shifted to safer asset classes due to risk aversion. Risks associated with the global financial stability have eased on the back of global recovery gaining traction.8 trn in Oct 2009. Prolonged period of excessive liquidity coupled with low interest rates fuelled the rather irrational rise in asset prices. which have been hit the hardest from the onset of the crisis through 2010. but at a varying pace across economies. In fact.8% for the cash and derivatives markets respectively. The EME stock markets rose strongly by 78% during Mar 2009 to Mar 2010.The Indian scenario: The Indian equity markets was on a sustained bull run during 2003-07. In addition to widespread participation by domestic retail and institutional investors. liberalized investment environment and a fully electronic exchange trading infrastructure ensured high participation of the 6 . Indian Brokerage Industry. similar to the trend seen during the pre-crisis period.
country’s macro-economic and demographic fundamentals. Trading turnover value dropped by 24.65 trillion and Rs.9% and 17. Trading turnover of the cash and derivatives markets is expected to touch Rs.foreign institutional investors (FIIs). However. new regulatory developments and the political situation.3% in the cash and derivatives markets respectively. Om Advisory expects the markets to recover during FY10. 2008 brought cataclysmic economic events with it and did not spare the domestic markets as well. high share of retail investors (62% and 63% of trading turnover in cash and derivatives markets respectively for FY08). Based on analysis of past growth. India ranks amongst the top 3 emerging markets in terms of registered FIIs. 230 trillion respectively during FY Projected Growth of Cash Trading Turnover 70 Turnover (Rs Trillion) 60 50 40 30 20 10 0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 7 .
8% of the total cash market turnover during FY08). Online trading channels can play an important part in catering to the regional spread and has indeed shown good growth (30.1% from 150 in 1993 to 44. Intra-day trading makes physical distribution channel necessary because it offers high market data latency and proximity to trading advice of the brokers/ other investors. retail investors have shown an overwhelming preference for nondelivery based trading (70. dropped it to extremely low levels. commissions are lower than even in the advanced markets 8 . 71.7% CAGR in share of total traded value since 2003).Share of Cash Trading Turnover of Brokerages 100% Share in Trading Turnover 80% 60% 40% 20% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08 Top 5 Source :SEBI Top 6-10 Top 11-25 Top 26-50 Top 51-100 Rest The brokerage market is largely retail and the retail investors are spread across the country (with majority from Mumbai).074 in 2008) as expansion of subbrokerage network means less capital outgo for the brokers. Growth in the number of sub-broker network reflect this (CAGR of 46. High competition has resulted in a steady compression of brokerage commissions over the years and intensely since 2008 when Reliance Money. For a relatively young market.1% CAGR in number of customers and 49. one of the new entrants with a massive physical distribution network. However.6% CAGR in number of internet enabled brokerage firms.
Om Advisory Cash Non-Deliv ery 9 .: Growth of Mean Brokerage Fees 50 40 30 20 10 0 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Fees (BPs) Derivatives Cash Deliv ery Large Trades Cash Delivery Small Trades Source: Industry Sources.
Profitability of the major players is already down and high operating capital requirements has put the sur-vival of small brokers at stake. While tolerable during boom years. it can play havoc with the industry during periods of economic distress.Compressing commissions result in industry equity broking revenues to grow slower than the trading turnover growth. 10 .
Further consolidation of the market share of the top 100 brokers. But this is likely not to pay high dividends over the short to medium term due to the economic. from here. Overall. competitive and regulatory headwinds against these service lines. Rise in market share of Reliance Money but muted industry profitability in the • .Projected Growth of Equity Broking Industry Revenues 350 300 Revenue (Rs Bn) 250 200 150 100 50 0 FY06 FY07 FY08 FY09 FY10 FY11 Source: Om Advisory In order to improve profitability. This will also lead to better electronification in the industry. Om Advisory believes that domestic brokerages that have already invested in setting up an institutional trading infrastructure can make inroads into the FII market as restrictions around the issuance of participatory notes has opened up this mar. However. particularly in the front office trading systems and usage of Direct Market Access (DMA). Possible decline in the number of brokers but increase in the number of sub-brokers. top firms have been consciously trying to broaden their portfolio of services.ket. the industry will likely traverse the following path: • • Likely recovery of trading turnover in FY10.
market commentary and major news are also offered through its website. besides broking is a depository participant with NSDL and CDSL. History The Nirmal Bang group of companies were founded by Nirmal Bang. consolidation will invariably follow. Live quotes. Thus Nirmal Bang became a corporate member of BSE with three membership rights. Technology is a key success enabler for this client category and the overall electronification of the industry will progress rapidly over the next few years. The company offers comprehensive range of products and services to meet the financial needs of its investors. The Group was thus the first in the history of the Bombay Stock Exchange to acquire six membership rights of the Exchange. It started up the DP services and also added broking into commodities and insurance advisory services to diversify into allied activities. Dilip Bang and Kishore Bang. for cash & derivatives segments. With commoditization of services. It started as a small localised player and ultimately transformed into a diverse group in a span of 20 years. Some of the major offerings include the following: Trading in Equities & Derivatives Equity trading is offered to retail clients through multiple channels including online trading in the BSE and the NSE. It is solidly capitalized to meet the demands of retail clients and sufficiently caring to ensure that service is not compromised. Technology usually commoditizes financial services and especially. broking services. • Nirmal Bang Securities: An introduction Nirmal Bang Securities Pvt Ltd (Nirmal Bang) is amongst the top full-service broking firm established in the year 1989. The company. especially in such a fragmented market. This segment contributes a major portion of its revenue. 12 .short and medium term. Bang Equity Broking Private Limited was formed in the year 1997. • Gain in FII market share by few of the top domestic brokerages. Nirmal Bang currently offers the full stock brokerage services in line with the overall strategy of the group. The group always believed in developing retail client network and had wide network of clients all over India. Their success is likely to draw in other players into this segment. top brokerages will scout for M&A opportunities amongst other top 25-50 firms. This company also became the corporate member of the BSE with three membership rights in the year 1999. Over the medium term.
the National Commodity & Derivatives Exchange Ltd (NCDEX). of Branches Name Terminals Sub Brokers No. It even offers information about forthcoming IPO’s.Trading in Commodities The group company is a member of India’s premier commodity exchanges. namely. MAJOR PLAYERS IN THE INDUSTRY: Name Terminals Sub Brokers No. IPO Nirmal Bang is also involved in the marketing of IPO’s. Depository Nirmal Bang is a depository participant of NSDL and CDS(I)L. of Employees No. It offers depository services through an online platform provided by Apex Softcell. the Multi Commodity Exchange of India Ltd (MCX). of Branches Name Terminals Sub Brokers No. of Employees No. new listing etc. of Employees No. of Branches: Kotak Securities Limited 4320 910 4008 350 Karvy Stock Broking Limited 1700 19000 3910 581 Indiabulls 2876 NA 5873 522 13 . open issues. Online Trading The company offers an online trading portal which is developed and maintained by Financial Technologies (India) Ltd.
of Branches Name Terminals Sub Brokers No. of Employees No. of Employees No. of Branches Name Terminals Sub Brokers No. of Employees No. of Branches Name Terminals Sub Brokers No. of Branches Name Terminals Sub Brokers No. of Branches Name Terminals Sub Brokers No.Name Terminals Sub Brokers No. of Employees No. of Employees No. of Employees IL&FS Investmart Limited 1644 NA 1900 294 Motilal Oswal Securities 7923 890 2193 63 Reliance Money 2428 1494 2037 142 India Infoline 173 173 NA 605 Angel Broking Limited 5715 NA 284 NA Anand Rathi Securities Limited 1527 320 4566 14 .
DEPOSITORY CHARGES: Nirmal bang takes the least depository charges. 15 . skill and dedication is shared with all clients. Whereas companies like icici take around 450-500 rupees. The group has more than 300 well-experienced and efficient staff to cater to the large clientele base.No.com SWOT ANALYSIS: NIRMAL BANG: STRENTHS: PROFESSIONALLY DRIVEN Nirmal Bang is a professionally driven organization having people with diverse professional backgrounds. 250 as annual maintenance for depository account. of Branches Name Terminals Sub Brokers No. The blend of experience. of Employees No. Account opening is free for the first year with Rs. of Branches 220 Geojit 627 247 343 314 source: mapsofindia.
The next seminar is on 16th july in association with ET NOW • • Software: Nirmal bang gives its client the terminal ODIN through which they can trade online anywhere just like the employees do at nirmal bang WEAKNESSES: Awareness: 16 . It has started an programme/show with Z-news called beyond mandi. With insightfull editorials. for providing knowledge of the markets its telecasted every Sunday on Z news. It frequently comes with seminar for investors.FREE INSURANCE: It provides free insurance to the client of 500000 accidental insurance and 50000 mediclaim. On opening an account and a margin of 5500 WIDE PRODUCT RANGE TO OFFER: Nirmal bang offers a wide variety of product services such as • Trading (Equity/Derivative/Commodity) • IPOs • Depository Services • Arbitrage • Margin Financing • Sale of Mutual Funds • Online Trading REACH AND ACCESS: Nirmal bang has around 500 employees with around 200 offices and 250 sub-brokers who have access to around 500 terminals CLIENT EDUCATION: • Nirmal bang has fortnightly magazine “beyond market” which is circulated to all its clients free of cost.
The percent share of both the segments is likely to be stable in future as more and more institutional entities venture into AssetManagement businesses but the number of retail participants is bound to increase as the risk appetites are increasing owing to demographical changes in the country. problems that can arise due to increase In online trading • • SERVER NOT FOUND CONNECTIVITY WITH THE BROKER AND NSE WHICH HAPPENED WITH ICICI . Companies such as ICICI AND INOLINE and etc have well established online trading facilities.Retail investors are not aware about nirmal bang securities inspite being the oldest brokerage firm. The company plans to launch its IPO next year. OPPORTUNITIES: The cream of the market is institutional investing which is well organized and informed. Retail investing will be small ticket activity but offers huge prospects for cross selling other financial products as and when the markets open up with necessary regulatory clearances.the company needs to establish a name for itself and needs to be listed.AND TRADING WAS NOT POSSIBLE FOR TWO AND A HALF HOUR CYBER ATTACK • 17 . They face competitors challenge in online trading. The major competitors of nirmal bang are publically listed companies and hence retail investore have heard more about them. THREATS: In the future the retail investment is set to go down as the valuations of top notch securities are beyond the reach of retail clients for existing clients . Regulatory environment in the country will allow brokers to manage whole portfolio of retail clients like in other developed markets.This combination of events will make the segment grow absolute value wise . But new set of clients are likely to be added to the existing pool of retail clients which will make the contribution stable.
• • NO PERSONAL ADVICE THERE CAN BE MARGIN ISSUES PORTER’S FIVE FORCES 18 .
Porter of Harvard Business School in 1979. business model or network to achieve a profit above the industry average. A very unattractive industry would be one approaching "pure competition". The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Attractiveness in this context refers to the overall industry profitability. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the micro environment. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit.porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. A change in any of the forces normally requires a company to re-assess the marketplace. The five forces model relevant to the Indian brokerage industry The Bargaining Power Of Customers 19 . Firms are able to apply their core competences.
Increased Focus of Banks in Retail Broking Various foreign banks like ABN Amro and others are planning to enter the Indian retail brokerage industry. The retail broking services provided by the various companies is homogeneous with very low product differentiation. • Low Product Differentiation Proves Beneficial The Bargaining Power Of Suppliers • Increased Dependence on IPOs There is a growing dependence of corporates on broking houses with the rising number of IPO’s coming to the market. dematerialization etc are strengthening the retail brokerage market and attracting foreign companies to enter The Threat Of Substitute Products • Alternative Investment Options Various alternative forms of investment including fixed deposits with banks and post offices etc act as substitutes to retail broking products and services. • • • Online Trading Competes with Traditional Brokerage There is an increasing demand for online trading due to consumer’s growing preference for internet as compared to approaching the brokers. Threat of New Entrants • Entry of Foreign Players New forms of trading including T+2 settlement system. This allows customers to enjoy a greater bargaining power. 20 .• • Lack of Expertise Curtails Bargaining Power Retail investors often lack the knowledge and expertise in the financial sector that calls them to approach the broking houses. • The Intensity Of Competitive Rivalry Move towards consolidation Lot of brokerage companies are moving towards consolidation with the smaller one becoming either franchisees for the larger brokers or closing operations.
brokers and slightly to the investors. laws and regulations. deciding how much is to be invested in the financial markets. Today in india .high inflation. As changes in the policies by SEBI . The government is trying to fight the inflation and thereby have brought about many policy changes which has affected the markets directly and indirectly. They also play an important role in framing policies for FIIs and FDIs. deregulation of the market. With them major other economies also faced the brunt . trade restrictions and tariffs. ECONOMICAL ENVIRONMENT: Economic environment is the most important factor for any company or industry.• Now even various banks provide similar type of services. which have a huge impact on equity markets. there will be lower inflows of FIIs and FDIs and the markets will have low investment. 21 . tax policies.changing tax structures. . The government plays a major part in financial services by formulating policies. PESTEL ANALYSIS: POLITICAL AND LEGAL FACTORS: Political and legal factors that can affect the broking industry are the government policies. The broking houses have to bre fair and transparent to their customers or the customers have the power to drag the broking company to consumer courts. greater spending power and low saving power are all facors of the economic environment. Brokers and companies have to comply with the policies framed by them. The equity markets are directly impacted from the economic condition of the country like we saw in the financial crisis of USA in 2008. They also give the same service of portfolio management and wealth management. If the government policies are very stringent. As we know SEBI is the regulator for equity markets. the markets have to be within the legal framework set by SEBI.the cost of living .has an impact on the companies.
At nirmal bang . They believe that stock markets will make loss for them.the software ODIN is used at office as well as its provided to its customers. its making trading transparent and really fast. SOCIAL FACTORS: Social factors related to equity markets can be understood as market sentiments. TECHNOLOGICAL FACTORS: Electronic trading. With the widespread of internet facilities many customers wish to do online trading. Investors attitude should be mapped. digital certification. online broking have emerged as major trends in technology. Where as a fixed deposit is the safest mode of investing and getting returns. And people are hesitating in investing in such markets. Its very important for the investors to have market knowledge and for brokers to understand their sentiments and invest accordingly. But the dependence on technology and internet can be disadvantageous when the systems don’t work and prove to fail. electronic contract notes. only 2-3% of the population invest in stock markts. 22 . straight through processing. The sentiments of people are very important factor for the markets and broking houses as well. There are a lot of software’s that are used by the broking agencies to provide online trading facilities to its customers. In our country investing in stock markets is not a rage yet. ICICI direct is one of the best online trading portal for customers. Many people do not understand the markets but go with their sentiments or jus indulge in trading. Growing technology integration is bringing the markets closure.In Greece the economic conditions are not well sound and hence their capital markets have been thrashed.
gov.sebi.REFERNCE Websites www.in www.dnb.com 23 .nseindia.co.nirmalbang.com www.in www.
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