Broking firms happy with high volatility

Broking firms happy with high volatility

Last week’s high volatility in the stock markets is good news for some. Although investors are upset the way money has been wiped out from their portfolios since 24 July, broking companies are happy because for them, high volatility means higher turnover.

Broking houses charge brokerage for every buying and selling, therefore, more volume means more business to them. Markets recorded a total turnover of Rs80,000 crore on 17 August—the highest for August. The National Stock Exchange recorded a turnover of Rs15,286 crore, compared with an average daily turnover of Rs12,147 crore in July.

“As long as turnover is high, the current volatility will not affect the profits of the broking houses," said Harshad Apte, vice-president, India Infoline, a Mumbai-based broking house. “Our average daily turnover has increased by 5-10% in the last few weeks compared with average daily turnover of Rs1,400 crore in the last quarter," he said.

Despite making money, stocks of broking houses have been hit hard by the falling markets. Among listed broking houses, over the period of one week, Geojit Financial Services Ltd has lost 9%, Emkay Share and Stock Brokers Ltd has lost 1% and India Bulls, 14%. “The stock prices of broking houses have gone down because they are reacting to the global falling markets," said Apte.

Motilal Oswal, chairman and managing director of Motilal Oswal, a broking house whose initial public offering will open from Monday, is upbeat about the broking business. “The US economy is a black box. We don’t know how far it can go down. But we are positive on India in the long run and are sure investors will make money. The broking houses have got more business because of more buying and selling by day traders and investors," he said.

“Current volatility is a short-term phenomenon. In the long term, markets are bound to rise and markets would get the business anyway," said Ambareesh Baliga, vice-president, Karvy Stock Broking.

All brokers, however, have expressed concern if this volatility continues for a longer period. “In the short-term volatility gives you more volume but it can drown out in the long run. Considering this if the volatility persists it can have negative impact on the business, said, Krishna Kumar Karwa, managing director of Mumbai-based Emkay Share and Stock Brokers Ltd.

The market capitalization of the Bombay Stock Exchange, which touched a level of Rs46 trillion on 24 July is now down to Rs42 trillion on 17 August.