Equity brokerages continue to suffer, as the results of Geojit BNP Paribas Financial Services Ltd for the June quarter show. That’s not surprising. As these pages have pointed out previously, brokerage commissions have been falling due to competition, while retail investors have shied away from stock trading.
Average daily trading in the cash segment during the three months ended June has declined by one-fifth compared with the year-ago period, to Rs 14,800 crore. This is forcing brokerages to cut staff. Last month, Alchemy Share and Stock Brokers Pvt. Ltd had shut down its institutional business.
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Geojit, in spite of having diversified its business by opening units across the Middle East, has not been spared. It has pretty much remained a traditional firm, with broking services, margin funding, and insurance and mutual fund distribution as its staples. Broking typically accounts for three-fourths of its total revenue.
Consequently, the company reported a 9% decline in revenue from a year ago to Rs 52.5 crore. Unlike previous quarters, it was able to curb operational expenses, but this was offset by the 13.5% rise in employee costs.
Administrative expenses rose 9% from a year ago. In spite of a 40% rise in other income, profit took a hit. Net profit declined one-third to Rs 4.3 crore, mirroring a trend in three of the previous four quarters. Note that this decline is on the top of a 60% drop in the previous June quarter.
The situation continues to be bleak. With interest rates rising and banks raising deposit rates, fixed income is proving to be a handy alternative to investors already scarred by the financial crisis. Equity markets, on the other hand, continue to be choppy, with all macro indicators holding out scant hope for a steady increase.
The Geojit stock, like most other listed brokerages, has underperformed the BSE Smallcap Index for over a year now. And, there is no reason to believe that the trend will change anytime soon.
Graphics by Yogesh Kumar/Mint
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