Mumbai: A 6.8% gain on the Bombay Stock Exchange’s (BSE) benchmark index Sensex so far this week has helped improve trading volumes and boosted battered shares of brokerage stocks.
A Mint analysis of the largest listed intermediaries in the country, on the basis of their market capitalization, indicates a trend reversal in their stock prices: four of the top five brokerages shares have rallied between 11% and 44% this week.
But it is just a “pull-back,” says C.J. George, chief executive of retail brokerage Geojit Financial Services Ltd. “The fall was too deep.”
Indeed, brokerage stocks were among the worst hit in the market correction between 10 January, when the Sensex reached its all-time high, and last week.
Significantly reduced daily trade volumes, which directly affect brokerages’ fee income from clients, has added to the woes for brokerages. Most have seen their shares plummet between 50% and 70% even though the benchmark index itself is down only 27% till 19 March.
Institutional broker Edelweiss Capital Ltd, the second-largest by market cap, has gained the highest: some 44% this week, even as the stock had fallen about 62% from 10 January to 19 March.
“There was lot of hype in the system a few months ago,” said Rashesh Shah, Edelweiss founder and chief executive. India Infoline Ltd, a retail brokerage, is up 20% this week, recouping a third of its 60% loss during the 10 January to 19 March period.
Indiabulls Financial Services Ltd, the biggest listed brokerage, and Motilal Oswal Financial Services Ltd have gained 12.6% and 11.1%, respectively, this week.
While Indiabulls had lost 52%, retail player Motilal Oswal had plunged 70% during the meltdown since 10 January. Religare Enterprises Ltd, which is planning a $100 million (Rs402 crore) acquisition of a London stockbroker, had fallen 44% since mid-January. The stock recovered under 4% this week.
Daily trade volumes are down from about $450 million around mid-January, to $255 million in February, though they improved to around $335 million mid-March.
Interestingly, some stocks, such as Motilal Oswal, are now trading well below their initial public offering price.
Motilal shares, offered at Rs825 a share in the initial public offering, are now trading at Rs644. Edelweiss, now trading at Rs850 a share, is just a tad above its issue price of Rs825.
The chief executive of a Mumbai-based retail brokerage, who didn’t want to be identified, maintained that even as trading volumes have plunged, revenue from distribution of financial products and other income of brokerages are still intact.