Despite the recent correction, India’s stock markets are still trading more than 100% higher against their lows in March 2009. But as far as volumes in the cash market are concerned, we’ve gradually headed back to the levels in early 2009, when the impact of the global financial crisis was at its peak.
The average daily cash market volume on the National Stock Exchange and BSE has been hovering below the Rs15,000 crore-mark in the past five months. As the chart shows, this is happening for the first time since early 2009. Between April 2009 and November 2010, a period when the markets did well, average daily volumes were over Rs21,000 crore. The decline this year has been sharp.
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Of course, the volumes in the derivatives market have continued to rise this year— they are now about 177% higher than the March 2009 levels. But brokerages, especially those servicing institutional clients, earn most of their revenue from transactions in the cash market. Dwindling volumes in the cash segment are evidently a cause for concern for them. What’s more, yields have been gradually coming down, owing to rising fragmentation in the marketplace. In the past few years, a number of domestic brokers have expanded their institutional broking business, leading to greater competition and lower commissions. Given this backdrop, it wasn’t very surprising that brokers such as Alchemy Shares and Stock Brokers Pvt. Ltd and Mangal Keshav Securities Ltd closed down their institutional broking business.
Graphic by Naveen Kumar Saini/Mint
The moot question is if there will be more casualties going ahead. There’s little doubt that the recovery in Europe will be a slow one, and as a result, sentiment isn’t going to improve in a hurry. Needless to say, only the relatively larger and stronger brokers will be able to weather the storm for a prolonged eriod. And even there, there are likely to be lay-offs to curtail expenses, given the tough operating environment.
In the past one year, share prices of India Infoline Ltd, Motilal Oswal Financial Services Ltd and Edelweiss Capital Ltd have fallen between 36% and 53% compared with an 18% drop in the Nifty.