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AN EMPIRICAL ANALYSIS OF INDIAN STOCK BROKING INDUSTRY

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PREFACEPREFACE

The importance of the vibrant, mature & the efficient capital market in the

economic development via capital formation can not be overstressed. The IndianStock Market has undergone a tremendous growth during the last two or three

years. BSE Sensex is almost tripled during this period.

This report deals with the part of the securities market, a broker, who is the nexus

between the buyer & the seller of the stock. How they works, what is the way he

conducts his business. Due to the colorizations of the brokers, the broking industry

has gone through a great consolidation.

The intention behind carrying out this project is to understand the industry aspects

of the broking firms as a whole. What are the services provided by the broker &

what factors get them to the success in the industry.

We are required to work on comprehensive research projects under the guidelines

of faculty involving application of concepts, tools & techniques to the real world

problems or research on the latest developments in the chosen fields of

management. This provides a unique opportunity for refining skills to work in a

diverse group.

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ACKNOWLEDGEMENT

Through this acknowledgement, we express our sincere gratitude towards those all

the people helped us in the preparation of this project, which has been learning

experience for a strategic analysis of the selected industry.

We would like thank to the H.O.D. Prof. TEJAS DAVE, the faculty members, the

librarians, the computer lab staff members & the administration staff of S.V.I.M

MBA College, KADI for their support.

Finally, we express our sincere thanks to Faculty Mrs. Kaumuidi Upadhyay who

guided us throughout the project & gave us valuable suggestion & encouragement.

This acknowledgement would not be complete without our gratitude to the

Hemchandracharya North Gujarat University, PATAN as well as S.V.I.M MBA

College, KADI (Faculty Members & Administration Staff) who extended their

helping hand whenever required.

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Content

NoNo ParticularParticular Page NoPage No

OVERVIEW OF STOCK MARKET 55

11ROLE OF INDUSTRY IN THE ECONOMY 1313

22 MAJOR PLAYERS: INDIAN STOCK MARKET 2121

33Key Differentiation Strategies: 3232

44 Service quality management analyzed player:

3434

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Stock Markets in India

During the last few years India has emerged as one of the world fastest growingeconomies. India stock markets grew not only in size but also in terms of productofferings. The increasing interest of foreign players in the domestic brokingindustry is a testimony to the stock market growth. The stock market in India hasalso received a thrust from rise in business transactions over the years, sharp dropin brokerage fees, and transaction costs, launch of a slew of new products, and arobust regulatory environment. The broking industry in India seems to be comingof age as more broking houses are getting listed and stock exchanges are becomingde-metalized and corporatized. The equity broking firms have also diversified toother businesses like investment banking and wealth management, which was oncethe turf of foreign players of international repute.

Reform-led growth of Indian stock markets

Over the years several measures electronic trading system, dematerializingsecurities, corporatizing and demutualising exchanges, settlement through clearingcorporations, trading in derivatives have been taken to expand the stock markets.During the last one year, the Securities and Exchange Board of India (SEBI)introduced some major policy initiatives; for instance, it made grading of IPOsmandatory; it introduced mini contracts in equity indices and option contracts withlonger life tenure, and recently, it permitted short selling, and securities lending and

borrowing and trading in currency futures. SEBI has invited proposals from various

exchanges for setting up an exchange for small and medium enterprises (SME).SEBI is the regulatory authority for stock markets in India.

The broking industry is poised for a quantum growth in the medium to long termbecause the economy is moderately strong; equity culture is proliferating; newproducts are hitting the markets; there is wider integration with global markets, andmore thrust on reforms. The Indian stock markets long existence, for over almostone and- a-half centuries, has enabled the broking industry to not only absorb andadopt new opportunities but also seamlessly improvise their systems, which has

paved the way for its growth and diversification.

Proliferation in equity culture

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Due to the reforms mentioned before, and due to greaterregulation in the capital market, the proportion of shares anddebentures in the total financial savings of the household sectorhas increased. In FY08, savings in shares and debentures

accounted for almost 10.5% of the total financial savings ofhouseholds as compared with just 5.1% in FY06. In FY08, thesavings in shares and debentures rose to over 1.6% of the GDP.

The household sectors savings, which includes both physical andfinancial assets, accounted for 23.8% of the GDP; out of this23.8%, financial assets had an 11.3% share and physical assetshad a 12.5% share. The financial assets comprise currency,deposits, shares and debentures, pension funds, mutual funds,life insurance funds et al.

During FY01 to FY08, the per capita income in India doubled to Rs33,283 from Rs 16,688. The per capital income in real terms atconstant prices (1999-00) was higher by 45.5% at Rs 24,295 ascompared with the per capita income of 1999-00.

According to a study by the National Council for Applied EconomicResearch (NCAER), the number of households that fall under themedium and high income bracket is set to go up steadily in thenext two years, while the number of households that fall in thepoor income bracket is set to recede. In FY08, household incomelevels for Mumbai and Delhi crossed the Rs 400,000-mark, whichis equal to twice the estimates for all-India GDP per capita, and

roughly equivalent to Chinas 2007 per capita income levels.

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Moreover, the income distribution has changed dramatically incertain cities. In Surat, for instance, the medium incomepopulation more than doubled during 2004-05 and 2007-08 andin Lucknow, Jaipur, and Nagpur, the growth in number of high

income households was the fastest.

Sensex goes on a free fall in 2008

During CY03-CY07 the Indian equity markets experiencedimpressive growth and grew by leaps and bounds. The strongmomentum in the equity market was in line with the robusteconomic growth witnessed during the last few years. Foreigninflows into the country swelled to more than Rs 2,301 billion instock markets during FY04- FY08, which was equal to almost 80%of the net cumulative FII investments in India at the end of FY08,as India turned into one of the fastest growing economies acrossthe world, and India Inc reported robust performance year afteryear. The phenomenal surge in FII investments and stock indicesreflected the future value and quick growth opportunities in India.

In FY08, the average market capitalization of companies listed onBombay Stock Exchange (BSE) was Rs 53.5 trillion, almost 9%more than the countrys GDP during the same year. The marketcapitalization to GDP ratio rose from just 21.9% in 2002-03 toover 109.0% during 2007-08. The surge in activity andparticipation at the Indian stock exchange reflects in the totalturnover to GDP ratio shown in the table below. The foreign

investment in India grew more than 24 times during FY03 toFY08. The sharp surge in market capitalization-to-GDP ratio and

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the continuous boom in stock market were synchronous with therobust GDP growth that the Indian economy witnessed. Thenumber of companies listed on the stock exchanges increased to1,381 in FY08, up by around 68% as compared with FY03.

In terms of movement of stock indices, the trend set in 2008turned out to be a sharp contrast to the trend seen in precedingyears as volumes dropped amid global sell-off triggered by thecrisis in the global financial markets and the fall out of majorbanks across the world. After climbing up to 21,206 on Jan 10,2008, the Sensex went on a free fall of more than 50% and endedthe year at 9,903.

India Inc looks towards public capital markets for funds

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Riding high on the wave of economic boom, India Inc optedstrongly for the initial public offer (IPO) route to raise financesduring FY05-FY08. The burgeoning size of the Indian IPOsincreased the borrowers access to capital, offered more efficient

prices, and increased opportunities for risk sharing.

The bull-run in Indias capital markets encouraged a shift infinancing from banks to public capital markets; there was a surgein large IPOs worth few billion dollars in the last few years. InFY08 larger issues made way into the market, and more than 30mega issues (issue size of above Rs 3 billion) hit the stockexchanges, including the Rs 115.63-billion ($3 billion) ReliancePower IPO. In FY08, 124 public issues (including rights issue)garnered Rs 870.29 billion while in FY07 the same number ofissues could collect only Rs 335.08 billion. The average size of theissue was Rs 7,020 million in FY08 as compared with Rs 2,700million in FY07, which was an indication of both the growing sizeas well as the attractive valuations earned by Indian companies.

However, the scene changed drastically in 2008, when on anaverage, only three IPOs per month were raised as compared witheight IPOs in a month raised during 2007. Moreover, few largehigh profile IPOs like that of Emaar MGF, Wockhardt Hospitalswithdrew or failed during the year.

FIIs sell equity worth Rs 477 billion during FY09

Foreign institutional investments (FII) increased significantlyduring FY03 and FY08, especially in FY04, when the surge in netforeign investment in the equity market reached a record Rs 458billion as compared with just Rs 27 billion in FY03. The net FIIinvestment was at an all-time high of Rs 662 billion during FY08;to reach a cumulative investment of Rs 2,914 billion. During thesame year, the FII turnover on the capital market segment of NSEwas close to 17.9% of the total market turnover.

However, an abrupt reversal in trend was observed in 2008, asthe worlds financial woes widened and so did the credit crunch.The failure of large banks worldwide prompted large outflowsfrom almost all emerging markets including India. India registereda net outflow in equity investments by foreign investors way backin FY99, when approximately 5% of the cumulative netinvestment by FIIs was liquidated. After ten years, the Indianmarkets currently are witnessing some FII outflow due to globalrecession and a depression worse than the Great Depression that

hit the developed countries in 1920s. In FY09, the FII investmentwas negative at Rs 477 billion, whereas the number of registered

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FIIs increased by 316 (24%) to 1,635 and the number ofregistered sub-accounts increased by 1,051 (27.4%) to 5,051.

As the FIIs shied away from the Indian markets, the domesticinstitutional investors comprising banks, domestic financialinstitutions, insurance and mutual funds came into the picture andpurchased huge amount of shares sold by FIIs throughout 2008.

The data on the investor category-wise turnover shows that thedomestic financial institutions bought aggressively in 2008 whenthe FIIs were selling heavily. The FII turnover on the capitalmarket segment of NSE was close to 17.9% of the total marketturnover.

Investors poorer by Rs 167.4 billion on each trading day

The Indian markets witnessed a fantastic year of business in 2007when the market was at its bullish best and cash counters were

ringing across the emerging markets. The financial markets wereon an upswing and the premier stock exchanges recorded a totalturnover of Rs 25,123 billion in Oct 2007 as compared with aturnover of Rs 9,011 billion in Jan 2007.

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However, there was a reversal in trend in 2008, when the markets entered one ofthe worst bearish modes seen in recent times. During this year, the markets werecharacterized by high volatility following a decline in volumes and consequentdecrease in liquidity. The financial markets in India lost nearly Rs 41,190.1 billionin 2008, as they mirrored the global trend. Even though the crises had originated inthe US and other European countries the slowdown did mar the Indian markets.Consequently, on an average, the financial markets in India lost close to Rs 499.8million for every trading minute in 2008, which made investors poorer by Rs 167.4

billion on each trading day of 2008. The ripple effects of this loss were seen in therising numbers of illiquid securities and the sharply decreasing traded turnover. The

number of illiquid securities rose to 1,923 in Feb 2009 as compared with 1,641 inJuly 2008. The rise in the number of illiquid securities is a concern as it mirrors thefact that more than half of the securities are illiquid.

The volume of shares traded declined by 25% and to a certainextent this decline could be attributed to the fall in stock prices.In 2008, the number of shares traded declined by just 2.83% to222,726 million as compared with 2007. The volume of sharestraded fell by 12.1% on the BSE and it climbed up by 3.4% in theNational Stock Exchange (NSE). The NSE not only garneredalmost the entire market share in equity derivatives but alsoincreased its market share in the cash market segment. A closerscrutiny of the equity cash and equity derivative segments of thestock exchanges indicate that in Dec 2008 the derivative marketof BSE was almost deserted as the exchange witnessed a totaltraded turnover of just Rs 0.3 billion as compared with a tradedturnover of Rs 222.8 billion in Jan 2008. In the cash marketsegment also, the market share of the BSE fell from 29.3% in Jan2008 to 27.5% during Dec 2008. Investors are bound to trade inmarkets that are more liquid and exit the illiquid markets duringliquidity crisis, and the investor behaviour in the derivative

segment of BSE probably follows this reason.

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Volatility of international stock market indices during2007-08

The movement of stock indices to a certain extent depends on

market sentiments one of the indicators of volatility, asincrease and decrease in volatility is always a signal of extent offear within the sentiment. The volatility in stock markets is highwhen fear is high. The volatility index generally starts risingduring times of financial stress and decreases as investorsbecome complacent. The rise in volatility index also reflects thepanic demand for puts as a hedge against decline in stockportfolios; therefore, there is less need for portfolio managers tobuy puts during a bull run.

The stock markets across the world remained turbulent during thewhole of 2008 and closed the year with significant declines, andhigh volatility. During FY08, China recorded high volatility ascompared with other BRIC countries (See table below). Thevolatility increased sharply in the second half of FY08 (OctMar).

In fact for almost all the countries, volatility almost doubledduring the second half of FY08 as compared with the start of theyear.

Brokers cautious about client funding

The dismal performance at the stock markets and the steep fall intrading volumes was a result of liquidity issues, deleveraging ofmarkets, and the credit crunch coupled with the most severe bearmarket in recent history. Due to the current bearish phase,revenue from related businesses in equity broking is alsoexpected to have taken a huge hit. The uncertain events and risein uncovered debits have turned brokers extra cautious in termsof lending without security.

According to the data on the NSE, the institutional clients

accounted for a major chunk of the amount funded during CY08.

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The amount funded through margin funding accounts formedclose to 20% of the total client funding. A margin tradingagreement allows the traders to borrow up to 50% of the totalmoney required for a stock purchase from the broker at a pre-

agreed rate of interest (18-20%).

Client funding by brokers on the NSE, which comprises of

temporary margin, margin trading, and funding for institutionaland non-institutional clients, declined since Jan 2008. The totalamount funded in Dec 2008 was Rs12,829.5 million, down byabout 55% as compared with the amount funded in Jan 2008. Thephasing in of the bear market from Jan 2008 suggests that thedeclining trading activity, low market volumes, liquidity issues,and credit crunch had caused a ripple effect and resulted in adecline in client funding.

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1. OVERVIEW OF STOCK MARKET

Right from the beginning the stock broking industry has undergone a drastic

change. Gone are the days when the individuals were acting as a stock broker &

just were serving a limited region. The industry structure has changed so much as

the corporate giants entered in the stock broking industry.

Broking Insights

The Indian broking industry is one of the oldest trading industries that have beenaround even before the establishment of the BSE in 1875. Despite passing through

a number of changes in the post liberalizations period, the industry has found its

way towards sustainable growth. With the purpose of gaining a deeper

understanding about the role of the Indian stock broking industry in the countrys

economy, we present in this section some of the

Industry insights gleaned from analysis of data received through primary research.

For the broking industry, we started with an initial database of over 1,800 broking

firms that were contacted, from which 464 responses were received. The list was

further short listed based on the number of terminals and the top 210 were selected

for profiling. 394 responses, that provided more than 85% of the information

sought have been included for this analysis presented here as insights. All the data

for the study was collected through responses received directly from the broking

firms. The insights have been arrived at through an analysis on various parameters,pertinent to the equity broking industry, such as region, terminal, market, branches,

sub brokers, products and growth areas.

In tune with the global stock markets that began to recover from the second half of

2003; Indian stock markets too witnessed rapid growth. Indias two leading

indices, the most popular BSE Sensex, and the one most used by the markets the

National Stock Exchanges S&P CNX Nifty rose to record levels. Both primary

and secondary market activity experienced sharp surge. Much progress was made

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in further strengthening and streamlining risk management, market regulation and

supervision. A few aspects of the major developmentsin theIndias stock markets

are described below.

Indian securities market is fairly large as compared to several other emerging

markets. There are 22 stock exchanges in the country, though the entire liquidity is

shared between the countries two national level exchanges namely, the National

Stock Exchange of India and the Bombay Stock Exchange Ltd. The regional stock

exchanges are in pursuit of business models that make them viable and vibrant.

Meanwhile, these exchanges have become members of the national level

exchanges through formation of subsidiaries whose business is showing continuous

growth and progress.

The number of brokers in various stock exchanges rose from 6,711 in 1994-95 to

9,335 in FY06. The number of brokers in all the exchanges together peaked to

10,213 in the year FY01 but gradually declined thereafter when the regional stock

exchanges began to lose business in the light of wide ranging market structure

reforms introduced since then. In FY01, when the markets were in upswing,

several regional stock exchanges were generating business owing to the

availability of deferral products, such Badla and different settlement calendars

prevailing at that time in these exchanges. For instance in FY01, the Delhi Stock

Exchange registered cash market turnover of Rs 838.71 Bn; Uttar Pradesh Stock

Exchange, Rs 247.47 Bn, Ludhiana Stock Exchange Rs 97.32 Bn, Pune Stock

Exchange Rs 61.71 Bn as against Rs 13,395.11 Bn of the turnover at the National

Stock Exchange and Rs 10,000.32 Bn turnover at the Bombay Stock Exchange.

With the abolition of the deferral products and introduction of uniform T+2settlement cycle, the liquidity in these exchanges flowed to the national level

system consisting of NSE and BSE.

Terminals

Almost 52% of the terminals in the sample are based in the Western region of

India, followed by 25% in the North, 13% in the South and 10% in the East.

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Mumbai has got the maximum representation from the West, Chennai from the

South, New Delhi from the North and Kolkata from the East.

Mumbai also has got the maximum representation in having the highest number of

terminals. 40% terminals are located in Mumbai while 12% are from Delhi, 8%

from Ahmadabad, 7% from Kolkata, 4% from Chennai and 29% are from other

cities in India.

Branches & Sub-Brokers

By the Western region, with 31% branches. Around 24% branches are located in

the South and East constitutes for The maximum concentration of branches is in the

North, with as many as 40% of all branches located there, followed 5% of the total

branches of the total sample.

In case of sub-brokers, almost 55% of them are based in the South. West and North

follow, with 30% and 11% sub-brokers respectively, whereas East has around 4%

of total sub-brokers.

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% of branches in each region

0

5

10

15

20

25

30

35

40

EAST WEST SOUTH NORTH

region

percentage

Series1

% of sub brokers present in each region

0

10

20

30

40

50

60

SOUTH WEST NORTH EAST

Region

Com

panies%

Series1

In tune with the global stock markets that began to recover from the second half of

2003; Indian stock markets too witnessed rapid growth. Indias two leading

indices, the most popular BSE Sensex, and the one most used by the markets the

National Stock Exchanges S&P CNX Nifty rose to record levels. Both primary

and secondary market activity experienced sharp surge. Much progress was made

in further strengthening and streamlining risk management, market regulation and

supervision. A few aspects of the major developments in the Indias stock markets

are described below.

Indian securities market is fairly large as compared to several other emerging

markets. There are 22 stock exchanges in the country, though the entire liquidity is

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shared between the countries two national level exchanges namely, the National

Stock Exchange of India and the Bombay Stock Exchange Ltd. The regional stock

exchanges are in pursuit of business models that make them viable and vibrant.

Meanwhile, these exchanges have become members of the national level

exchanges through formation of subsidiaries whose business is showing continuous

growth and progress.

The number of brokers in various stock exchanges rose from 6,711 in 1994-95 to

9,335 in FY06. The number of brokers in all the exchanges together peaked to

10,213 in the year FY01 but gradually declined thereafter when the regional stock

exchanges began to lose business in the light of wide ranging market structure

reforms introduced since then. In FY01, when the markets were in upswing,

several regional stock exchanges were generating business owing to the

availability of deferral products, such Badla and different settlement calendars

prevailing at that time in these exchanges.

For instance in FY01, the Delhi Stock Exchange registered cash market turnoverof Rs 838.71 Bn; Uttar Pradesh Stock Exchange, Rs 247.47 Bn, Ludhiana StockExchange Rs 97.32 Bn, Pune Stock Exchange Rs 61.71 Bn as against Rs 13,395.11

Bn of the turnover at the National Stock Exchange and Rs 10,000.32 Bn turnoverat the Bombay Stock Exchange. With the abolition of the deferral products andintroduction of uniform T+2 settlement cycle, the liquidity in these exchangesflowed to the national level system consisting of NSE and BSE.

Financial Markets

The financial markets have been classified as cash market, derivatives market, debtmarket and commodities market. Cash market, also known as spot market, is themost sought after amongst investors. Majority of the sample broking firms aredealing in the cash market, followed by derivative and commodities. 27% firms are

dealing only in the cash market, whereas 35% are into cash and derivatives.Almost 20% firms trade in cash, derivatives and commodities market. Firms thatare into cash, derivatives and debt are 7%. On the other hand, firms into cash andcommodities are 3%, cash & debt market and commodities alone are 2%. 4% firmstrade in all the markets.

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In the cash market, around 34% firms trade at NSE, 14% at BSE and 52% trade atboth exchanges. In the equity derivative market, 48% of the sampled brokinghouses are members of NSE and 7% trade at BSE, while 45% of the sampleoperate in both stock exchanges. Around 43% of the broking houses operating inthe debt market, trade at both exchanges with 31% and 26% firms uniquely at NSEand BSE respectively.

Of the brokers operating in the commodities market, 57% firms operate at NCDEXand MCX. Around 20% and 21% firms are solely in NCDEX and MCXrespectively, whereas 2% firms trade in NCDEX, MCX and NMCE.

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Indian stock markets:

Growth of market structure (in number)

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List of Stock Exchanges: INDIA

There are 22 stock exchanges in India. These are shown below

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Bombay Stock Exchange

National Stock Exchange

Bangalore Stock Exchange

Bhubaneswar Stock Exchange

Calcutta Stock Exchange

Cochin Stock Exchange

Coimbatore Stock Exchange

Delhi Stock Exchange

Guwahati Stock Exchange

Hyderabad Stock Exchange

Jaipur Stock Exchange

Ludhiyuana Stock Exchange

Madhya Pradesh Stock Exchange

Madras Stock Exchange

Magadha Stock Exchange

Mangalore Stock Exchange

Meerut Stock Exchange

OTC Stock Exchange

Pune Stock Exchange

Saurasthra Stock Exchange

Uttar Pradesh Stock Exchange

Vadodara Stock Exchange

1. ROLE OF INDUSTRY IN THE ECONOMY

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Indian Stock MarketsWith over 20 million shareholders, India has the third largest

investor base in the world after the USA and Japan. Over 9,000 companies are

listed on the stock exchanges, which are serviced by approximately 7,500

stockbrokers. The Indian capital market is significant in terms of the degree of

development, volume of trading and its tremendous growth potential.

India's market capitalization was amongst the highest among the emerging markets.

Total market capitalization of the BSE as on July 31, 1997 was Rs 5,573.07 billion

growing by 18 percent over a period of twelve months and as of August 2005 was

over $500 billion (about Rs 22 lakh crores).

Country Market cap (US$ billion) % of world1 USA 15,517 39.5

2 Japan 4,079 10.4

3 United Kingdom 3,067 7.8

4 France 1,828 4.7

5 Germany 1,256 3.2

6 Canada 1,239 3.2

7 Hong Kong 1,001 2.6

8 Switzerland 872 2.2

9 Italy 788 2.0

10 Spain 688 1.811 Australia 687 1.8

12 Russia 592 1.5

13 South Korea 557 1.4

14 India 506 1.3

15 Taiwan 475 1.2

Worldwide Stock Markets

Source: ETIG

India has emerged as the worlds 14th largest equity market after it added several

companies to the billion dollar club in terms of capitalization in the last three

months, taking the total to 81 companies. India has become the third largest Asian

market (excluding Japan and Australia) after having toppled Korea, China and

Singapore that have 80, 50 and 47 firms with billion-dollar market

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a. INFRASTRUCTURE DEVELOPMENT

Traditionally brokers were serving the need of local public only as there was

limited infrastructure development. But after the entry of corporate brokers, now

they have not restricted themselves to local boundaries only, Brokers are going for

expanding their network to the wide area. Every corporate broker is now trying to

reach in each of the geographical corner of the country & providing as many

services as possible to the investors.

b. MAJOR DEVELOPMENTS

i) Corporate memberships

There is a growing surge of corporate memberships (92% in NSE and 75% inBSE), and the scope of functioning of the brokerage firms has transformed from

that of being a family run business to that of professional organized function that

lays greater emphasis on observance of market principles and best practices. With

proliferation of new markets and products, corporate nature of the memberships is

enabling broking firms to expand the realm of their operations into other

exchanges as also other product offerings. Memberships range from cash market

to derivatives to commodities and a few broking firms are making forays intoobtaining memberships in exchanges outside the country subject to their

availability and eligibility.

ii) Wider product offerings

The product offerings of brokerage firms today go much beyond the traditional

trading of equities. A typical brokerage firm today offers trading in equities and

derivatives, most probably commodities futures, exchange traded funds,

distributes mutual funds and insurance and also offers personal loans for housing,

consumptions and other related loans, offers portfolio management services, and

some even go to the extent of creating niche services such as a brokerage firm

offering art advisory services. In the background of growing opportunities for

Investors to invest in India as also abroad, the range of products and services will

widen further. In the offing will be interesting opportunities that might arise in the

exchange enabled corporate bond trading, soon after its commencement and

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futures trading that might be introduced in the near future in the areas of interest

rates and Indian currency.

iii) Greater reliance on research

Client advising in India has graduated from personal insights, market tips to

becoming extensively research oriented and governed by fundamentals and

technical factors. Vast progress has been made in developing company research

and refining methods in technical and fundamental analysis. The research and

advice are made online giving ready and real time access to market research for

investors and clients, thus making research important brand equity for the

brokerage firms.

iv) Accessing equity capital markets

Access to reliable financial resources has been one of the major constraints faced

by the equity brokerage industry in India since long. Since the banking system is

not fully integrated with the securities markets, brokerage firms face limitations in

raising financial resources for business and expansion. With buoyancy of the stock

markets and the rising prospects of several well organized broking firms,

important opportunity to access capital markets for resource mobilization has

become available. The recent past witnessed several leading brokerage firms

accessing capital markets for financial resources with success.

v) Foreign collaborations and joint ventures

The way the brokerage industry is run and the manner in which several of them

pursued growth and development attracted foreign financial institutions and

investment banks to buy stakes in domestic brokerage firms, paving the way for

stronger brokerage entities and possible scope for consolidation in the future.

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Foreign firms picked up stake in some of the leading brokerage firms, which might

lead to creating of greater interest in investing in brokerage firms by entities in

India and abroad.

vi) Specialized services/niche broking

While supermarkets approach are adopted in general by broking firms, there are

some which are creating niche services that attract a particular client group such as

day traders, arbitrage trading, investing in small cap stocks etc, and providing

complete range of research and other support to back up this function.

vii) Online broking

Several brokers are extending benefits of online trading through creation of

separate windows. Some others have dedicated online broking portals. Emergence

of online broking enabled reduction in transaction costs and costs of trading. Keen

competition has emerged in online broking services, with some of these offering

trading services at the cost of a few basis points or costs which are fixed in nature

irrespective of the volume of trading conducted. A wide range of incentives are

being created and offered by online brokerage firms to attract larger number of

clients.

viii) Compliance oriented

With stringent regulatory norms in operation, broking industry is giving greater

emphasis on regulatory compliance and observance of market principles and codes

of conduct. Many brokerage firms are investing time, money and resources to

create efficient and effective compliance and reporting systems that will help them

in avoiding costly mistakes and possible market abuses. Brokerage firms now have

a compliance officer who is responsible for all compliance related aspects and for

interacting with clients and other stake holders on aspects of regulation and

compliance.

ix) Focus on training and skill sets

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Brokerage firms are giving importance and significance to aspects such as training

on skill sets that could prove to be beneficial in the long run. With the nature of

markets and products becoming more complex, it becomes imperative for the

broking firms to keep their staff continuously updated with latest development in

practices and procedures. Moreover, it is mandated for certain types of

dealers/brokers to seek specific certification and examinations that will make them

eligible to carry business or trade. Greater emphasis on aspects such as research

and analysis is giving scope for in-depth training and skills sets on topics such as

trading programs, valuations, economic and financial forecasting and company

research.

x) From owners to traders

A fundamental change that has taken place in the equity brokerage industry, which

is a global trend as well, is the transformation of broking from owners of the stock

exchange to traders of the stock market. Demutualization and corporatisation of

stock exchanges bifurcated the ownership and trading rights with brokers vested

only with the later and ownership being widely distributed. Demutualization is

providing balanced welfare gains to both the stock exchanges and the members

with the former being able to run as corporations and the latter being able to avoid

conflict of interests that sometimes came as a major deterrent for the long term

growth of the industry.

1.3. Emerging challenges and outlook for the brokerage industry

Brokerage firms in India made much progress in pursuing growth and buildingprofessionalism in operations. Given the nature of the brokerage industry being

very dynamic, changes could be rapid and so as the challenges that emerge from

time to time. A brief description on some of the prospects and challenges of the

brokerage firms are discussed below.

i) Fragmentation

Indian brokerage industry is highly fragmented. Numerous small firms operate in

this space. Given the growing importance of technology in operations and

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increasing emphasis on regulatory compliance, smaller firms might find it

constrained to make right type of investments that will help in business growth

and promotion of investor interests.

ii) Capital Adequacy

Capital adequacy has emerged as an important determinant that governs the scope

of business in the financial sector. Current requirements stipulation capital

adequacy in regard to trading exposure, but in future more tighter norms of capital

adequacy might come into force as a part of the prudential norms in the financial

sector. In this background, it becomes imperative for the brokerage firms to focus

on raising capital resources that will enable to give continuous thrust and focus onbusiness growth.

iii) Global Opportunities

Broking in the future will increasingly become international in character with the

stock markets being open for domestic and international investors including

institutions and individuals, as also opportunities for investing abroad. Keeping

abreast with developments in international markets as also familiarization with

global standards in broking operations and assimilating major practices andprocedures will become relevant for the domestic brokerage firms.

iv) Opportunities from regional finance

Regional economic integration such as that under the European Union and the

ASEAN have greatly benefited businesses in the individual countries with cross

border opportunities that helped to expand the scope and significance of the

business. Initial measures to promote South Asian economic integration is being

made by governments in the region first at the political level to be followed up inregard to financial markets. South Asian economic integration will provide greater

opportunities for broking firms in India to pursue cross border business. In view of

several of common features prevailing in the markets, it would be easier to make

progress in this regard.

v) Product Dynamics

As domestic finance matures and greater flow of cross border flows continue, new

market segments will come into force, which could benefit the domestic brokerage

firms, if they are well prepared. For instance, in the last three to four years,

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brokerage firms had newer opportunities in the form of commodities futures,

distribution of insurance products, wealth management, mutual funds etc, and as

the market momentum continues, broking firms will have an opportunity to

introduce a wider number of products.

vi) Competition from foreign firms

Surging markets and growing opportunities will attract a number of international

firms that will increase the pace of competition. Global firms with higher levels of

capital, expertise and market experience will bring dramatic changes in the

brokerage industry space which the local firms should be able to absorb and

compete. Domestic broking firms should always give due focus to emerging trends

in competition and prepare accordingly.

vii) Investor Protection

Issues of investor interest and protection will assume centre stage. Firms found not

having suitable infrastructure and processes to ensure investor safety and

protection will encounter constraints from regulation as also class action suits that

investors might bring against erring firms. The nature of penalties and punitive

damages would become more severe. It is important for brokerage firms to

establish strong and streamlined systems and procedures for ensuring investor

safety and protection.

2. - MAJOR PLAYERS: INDIAN STOCK MARKET

The Stock Broking industry is a fragmented industry. We can not easily define that

who is the key players in the industry. It is not easy to identify that that are lading &

dominating the industry. The products & the services are so much diverse in this

industry. In this chapter we have just given the brief information about few big players

in the stock broking industry in India. We have included several aspects of them like

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services, geographic coverage, branches, tenure etc. We will look at some players one

by one.

2.1.1- ICICI SECURITIES

ICICI Securities Limited is Indias leading full-service investment bank with

leadership position in all segments of its operations - Corporate Finance, Fixed

Income & Equities. It is a subsidiary of ICICI Bank, the largest private sector bank

in India & operates out of Mumbai with offices in New Delhi, Chennai, Calcutta &

New York, London & Singapore.

ICICI Securities today is India's leading Investment Bank & one of the most

significant players in the Indian capital markets. This is reflected in the number of

awards that our teams in Fixed Income, M&A & equity capital markets win. ICICI

Web Trade provides a facility of e-trading through its own portal named

www.icicidirect.com & it contributes the major part of the total volume in the

online trading segment.

2.1.2 Performance

ICICIs Fixed Income team for the last two years (CY 2004 & 2005) has been

adjudged as the Best Bond House in India by both Asia money & Finance Asia.

The equities team was adjudged as the Best Indian Brokerage House-2003 by

Asia money. The Corporate Finance team, according to Bloomberg topped the

M&A league tables in 2003.

2.1.3 Subsidiaries

30
http://www.icicisecurities.com/newimage800600/about_us/aboutus.htm#a1http://www.icicisecurities.com/newimage800600/about_us/aboutus.htm#a3http://www.icicisecurities.com/newimage800600/about_us/aboutus.htm#a2http://www.icicidirect.com/http://www.icicisecurities.com/newimage800600/about_us/aboutus.htm#a1http://www.icicisecurities.com/newimage800600/about_us/aboutus.htm#a3http://www.icicisecurities.com/newimage800600/about_us/aboutus.htm#a2http://www.icicidirect.com/


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Its wholly owned subsidiary, ICICI Brokerage Services Limited (IBSL), we buy &

sell equities for our institutional clients. ICICI Securities has a U.S. subsidiary,

ICICI Securities Inc., which is a member of the National Association of Securities

Dealers, Inc. (NASD). As a result of this membership, ICICI Securities Inc. can

engage in permitted activities in the U.S. securities markets. These activities

include dealing in securities markets transactions in the United States & providing

research & investment advice to U.S. investors.

ICICI Securities Inc. is also registered with the Financial Services Authority, UK

(FSA) & the Monetary Authority of Singapore (MAS) to carry out Corporate

Advisory Services. ICICI Securities is registered with SEBI & IBSL is & registeredwith the leading stock exchanges NSE & BSE.

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2.1.4 KOTAK SECURITIES

Kotak Securities Ltd., a strategic joint venture between Kotak Mahindra Bank &

Goldman Sachs (holding 25% - one of the world's leading investment banks &

brokerage firms) is India's leading stock broking house with a market share of

around 8%.

The company offers institutional & retail stock broking, portfolio management

services (PMS) & distribution & depository services. It manages Rs 1,200 crore

under its PMS services. Currently, the company is spread across 150 cities with 60

branches & 890 franchisees. Kotak Securities Ltd. has been the largest in IPO

distribution.

2.1.4 Performance

www.kotakstreet.com, the e-broking arm of Kotak Securities, contributed 15 % to

the total revenue of the firm in the last fiscal. "In the next one year, the contribution

should grow to 25-30 % of the total revenue,

Kotak securities have been graced with awards include:

Prime Ranking Award (2003-04)- Largest Distributor of IPO's

Finance Asia Award (2004)- India's best Equity House

Finance Asia Award (2005)-Best Broker In India

Euro money Award (2005)-Best Equities House In India

The company has a full-fledged research division involved in Macro Economic

studies, Sectoral research & Company Specific Equity Research combined with a

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strong & well networked sales force which helps deliver current & up to date

market information & news.

Kotak Securities Ltd is also a depository participant with National Securities

Depository Limited (NSDL) & Central Depository Services Limited (CDSL),

providing dual benefit services wherein the investors can use the brokerage services

of the company for executing the transactions & the depository services for settling

them.

Kotak Securities has 122 branches servicing more than 1, 70,000 customers &

coverage of 187 cities. Kotaksecurities.com, the online division of Kotak SecuritiesLimited offers Internet Broking services & also online IPO & Mutual Fund

Investments.

Kotak Securities Limited manages assets over 2500 crores of Assets under

Management (AUM) .It also provide the portfolio Management Services, catering

to the high end of the market.

2.1.5 INDIABULLS SECURITIES

India bulls is India's leading retail financial services company with 135 locations

spread across 95 cities. Provide varied products & services at very attractive prices

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2.1.5 Area of operation

The company provides various types of brokerage accounts & services related to

the purchase & sale of securities such as equity, debt & derivatives listed on the

BSE & the NSE. It provides depository services, equity research services, mutual

fund & IPO distribution to its clients. It has a tie upwith a Birla Sun life insurance

to distribute various insurance products. It also provides commodity trading

through India bulls commodity. It provides these services through on-line & off-

line distribution channels, the latter primarily through its relationship managers &

marketing associates. ISL has invested heavily in building a strong sales team, & at31 March 2005, it had over 865 relationship managers.

2.1.6 GEOJIT SECURITIES

The Kochi based Geojit Securities Limited was promoted by C J George & A V

Viswanadhan.It was incorporated in the year 1994 & commenced the business from

January 1995.Immediately after commencement of business, the company came outwith the Public Issue (IPO) of 950000 Equity Shares of Rs.10 each. The company

has changed its name from Geojit Securities Limited to Geojit Financial Services

Limited. Recently Rakesh juhnjunwala has acquired majority of stock holding of

the company.

2.1.6 Area of operation

Geojit Securities has been engaged mainly in Stock & Share Broking, commodity

broking, Depository Services & Portfolio Management services. The company was

the first to start online/internet trading in the country which was started in the year

2000. The Company has entered the distribution business of insurance & financial

products by incorporation of 3 new subsidiary companies for undertaking the

business.

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The company has signed MOU with Barjeel Shares & Bonds of UAE, owned by a

member of the ruling family of Sharjah, during the year 2000-01 for setting up a

joint venture in Dubai. This joint venture gives the company a unique advantage of

being the only licensed operator in the UAE for Indian Capital Market products.

2.1.6 Subsidiaries

During the year 2002-03 Geojit's wholly owned subsidiary Geojit Infofin

Technologies Ltd became the Corporate Agent of Met life India Insurance

Company for distribution of their products.

The Company aims to be a niche player in the capital market through partnership

philosophy by carefully selecting business associates & other intermediaries in

other fields.

2.1.7 KARVY CONSULTANT

KARVY, is a premier integrated financial services provider, & ranked among the top

five in the country in all its business segments, services over 16 million individualinvestors in various capacities, & provides investor services to over 300 corporate,

comprising the who is who of Corporate India.

2.1.7 Area of operations

KARVY covers the entire spectrum of financial services such as Stock broking,

Depository Participants, Distribution of financial products - mutual funds, bonds, fixed

deposit, equities, Insurance Broking, Commodities Broking, Personal Finance

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Advisory Services, Merchant Banking & Corporate Finance, placement of equity,

IPOs, among others. Karvy has a professional management team & ranks among the

best in technology, operations & research of various industrial segments.

2.1.7 Achievements

Among the top 5 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Among the to top 3 Depository Participants

Largest Network of Branches & Business Associates

ISO 9002 certified operations by DNV

Among top 10 Investment bankers

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT uses in India by MIS Asia

Full Fledged IT driven operations

2.1.8 MOTILAL OSWAL SECURITIES

Motilal Oswal is one of the top-ranking broking houses in India, with a dominant

position in both institutional & retail broking, Motilal Oswal Securities Ltd. is

amongst the best-capitalized firms in the broking industry in terms of net worth.

It focuses on customer-first-attitude, ethical & transparent business practices

respect for professionalism, research-based value investing & implementation of

cutting-edge technology have enabled it to blossom into a thousand-member team.

The institutional business unit has relationships with several leading foreign

institutional investors (FIIs) in the US, UK, Hong Kong & Singapore. In a recent

media report Motilal Oswal Securities Ltd. was rated as one of the top-10 brokers

in terms of business transacted for FIIs.

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2.1.8 Achievements

Motilal Oswal Securities Ltds equity research has been consistently ranked very

highly in surveys conducted by leading international publications like Asia Money

& Institutional Investor. In Asia Money Brokers Poll 2003 Motilal Oswal Securities

Ltd. has been rated as the Best Domestic Research House - Mega Funds, while in

2000 & 2002 it has been rated as the Best Domestic Equity Research House &

Second best amongst Indian Brokerage firms respectively. The unique Wealth

Creation Study, authored by Mr. Reamed Agawam, Managing Director, is now in

its tenth year. Investors keenly await the annual study for the wealth of information

it has on how companies created wealth during the preceding five years.

BROKER BUSINESS MODEL

Traditionally there are only individual can become the broker but after 1992

corporate brokers are approved to become the brokers. So, the business models are

changed drastically mentioned below:

Till 1992, there are only individual were allowed to act as a broker. But after 1923,

corporate are allowed to become a member. Due to this, there is a drastic change in

the business model of the broking firm.

As shown in the above model, there are two main parts:

Individual members

Corporate members

Here, individual member due to the resource constraint can not provide wide range

of services, while corporate member can provide wide range of services & among

them, 54 member are providing the facility of online trading.

37

BROKER

INDIVIDUAL

MEMBERS

CORPORATE

MEMBERS

Only stockBrokingService

Stocks,Commodity

Broking

All servicesexceptonlinetrading

All servicesincluding

onlinetrading
http://www.motilaloswal.com/wc2005/wc2005.pdfhttp://www.motilaloswal.com/wc2005/wc2005.pdfhttp://www.motilaloswal.com/people.htmhttp://www.motilaloswal.com/wc2005/wc2005.pdfhttp://www.motilaloswal.com/wc2005/wc2005.pdfhttp://www.motilaloswal.com/people.htm


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Brokers business model

Inside the broking firm

38

FirmsClient

Sales

Department(Account

Executives

Research

InvestmentBanking (orSyndicationDepartment)

OrderRoom

OrderProcessing

(Operations)

Issuers

Over theCounter Market

Traders

ExchangeFloor Brokers


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Comparison of Broking firms:

3.0 Key Differentiation Strategies:

Companies Religare Angel

India

Bulls ICICI

Motilal

Oswal

India

Infoline

Relianc

eMoney

Share

Khan Anagram

Brokerage0.05,

0.5

0.05,

.0.5

0.04,

0.40.10, 0.75

0.05,

0.5

0.05,

0.5

0.01

per

trade

0.05,

0.4

0.05,

0.5

Registration299, 499,

999660 900 750 500 555 750 750, 1000 600

Exposure 6 10 10to12 5 10 8 5 4 5

MinimumMargin

1000 1000 5000 savingsA/C

500l 2000 nil 2000 Nil

Slip Charges 15 6 6 25

Minim

um Rs

15 and

max-

100

12 0 19

Online incl Incl 750 incl incl

incl

(+ 500

coupon

chg.)

incl. 599

Days for

Registration5 6 days 7days 5 5days 15days 4days 7 days

Interest

Charges18% 16% 18% 18% 18% 24% 18% 18%

Net Banking Yes Yes Yes Yes Yes Yes Yes Yes Yes

Softwarer-ace,

r-acelite

ODIN &

angel

anywhere

Web

basedweb based ODIN

ODIN

&

T.T.Adv

Web

based

CLASS

SPLIT

Moneypore

Express

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India Infoline

To go for penetration, focus on only sales

Motilal Oswal

To focus on only volume

General STRATEGIES ADOPTED BY THE BROKERS

3.1 Stresses on Branding:

In past when only individual brokers were there at that time investor were selecting

the brokers on the basis of their reputation. Now after corpotisation of brokers

many big brokerage firms enter in to the market but still investors select their

broker on the basis of the brand name. So putting more stress on branding, the

companies can attract more clients.

3.2 catch every need of the customer:

Traditionally brokers operated only in stock broking service. But, now looking at

the tough competition they can not restrict their business to stock broking only.

They need to operate in various other services like Mutual fund distribution, IPO

distribution, commodity trading, margin funding, portfolio management, &

consultancy services. The customers also prefer the broker who provide them the

complete investment solutions for them like how to invest, when to invest, where to

invest & how much to invest. In short they need to provide the wide variety of

customized products.

3.3 Strategic-tie-ups & acquisitions:

This is the best strategy in this industry & most of all big players has already

adapted this strategy. Some big players have started acquiring small brokers.

Through this rout they expand their operations & the geographical coverage. A

broker can hire experienced staff by providing the higher pays, provide value added

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services & still can book more profit per employee then a small broker. A small

broker usually does not afford to hire such experts. Big players can plough back the

big fund & thereby expanding its business more & more. But, this is not possible

for a small broker & also small broker can not offer the minimum brokerage

charges as big brokerage firm can do. So, it is viable option for both to consolidate.

3.4 Utilize all Channels:

There are currently three channels available for the interaction between the broker

& the client for trading. They are following the distribution channel as we mention

in place.

4.0 Service quality management analyzed player:

India Infoline and Motilal oswal securities ltd. service quality management:

1-STOCK BROKING & DERIVATIVES TRADING SERVICES

Stock broking is the primary activity of the stock brokers. When acting as a broker,

the firm acts as a matchmaker between someone who wants to buy a security &

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someone who wants to sell. The broker arranges the trade & charges a fee, called a

commission, for its services.

Firm or individual should have membership of any recognized stock exchange in

order to act as a broker. Big firms have a multiple membership of the exchanges

(both NSE & BSE).

As a capital market reforms, the Securities & Exchange Board of India allowed

trading equities based derivatives on stock exchanges in June 2000. Accordingly,

NSE & BSE introduced trading in futures & options. For providing derivative

trading service, broker need separate membership for F&O segment. Currently, thevolumes of F&O segment exceed the volume of cash market. All the big broking

firms are providing this derivative trading facility.1

India infoline give on line trading account and registered in BSE & NSE &

FUTURE & OPTION. Easily done transaction in Equity and Derivative.

2-COMMODITY BROKING

After 2000 government has granted permission for trading in commodities.

Currently NCDEX, MCX & NMCE are three nation wide commodity exchanges.

Most of the big broking firms also have membership of this exchanges & providing

commodity broking. By providing commodity trading firm can leverage its current

infrastructure. Some of the broking firms open new subsidiary for the commodity

trading, like India bulls commodity, Karvy commodity etc.

India infoline is easily done transaction in commodity market because this client

maintain only Rs 10000 in account and other hand motilal oswal open a separate

account for commodity transaction.

3-INVESTMENT BANKING

1Indian Economy Review.pdf byMr T Kannan Past Chairman, CII Southern

Region Coimbatore.

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India infoline second pit name is INVESTMENT BANKING.Because it is sold all

the things regarding investment with out credit card. India infoline sell equity,

commodity, portfolio management services, wealth management services, research,

insuarance, personal loan, mutual fund and IPO.

Motilal oswal will not sold two item are as under:

1. insurance

2. personal loan

The Corporate Finance business focuses on advising clients on industry

consolidation. Brokers have the fragmented nature of the Indian M&A market is a

major constraint in availability of accurate data on market share estimates.

4-MARGIN FUNDING

Month Total No. of

members

Members eligible for

margin trading facility

Members providing

margin trading

facility

BSE NSE BSE NSE BSE NSE

Apr-05 843 784 14 13 3 3

May-05 843 787 14 15 3 5

Jun-05 843 791 15 16 4 5

Jul-05 843 792 17 19 4 5

Aug-05 843 793 18 21 4 6

Source: Secondary Market Advisory Committee (SMAC)

[Table 4.1: Margin Funding]

With the growth of the internet as a medium for buying & selling of shares the

brokerage rates of the brokers in the India have also come down dramatically. So

how do the brokerage houses give facilities at such low costs? The answer lies in

putting up the margin money for their clients & earning interest income. This works

in two ways; first they earn interest incomes & secondly since they are putting up

the margin money the clients have more money with which they can buy shares &

are hence increasing the brokerage margin. However all the brokers are not eligible

for providing the facility of margin funding. Here are the numbers of brokers that

are eligible for providing this service. But many other brokers are also providing

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this service illegally to their clients. SEBI has recently tightened the rules to

prevent this illegal practice for the protection of the interest of the small investors.

Motilal oswal and India infoline give funding on categories wise such as A, B, C

Category India infoline Motilal oswal

A 85% 75%B 65% 65%

C 55% 55%

Not give funding in Z & T category.

This funding limit is based on market.

5-DEPOSITORY PARTICIPANT

Currently there are two depositories in India. NSDL (National Securities

Depository Ltd) CDSL (Central Securities Depository Ltd). Which are looking

after dematerialization of shares? In order to provide these services to the investor

they appoint depository participant (DP). The DP is an authorized body who is

involved in dematerialization of shares & maintaining of the investors accounts &

most of all big broking house act as a DP.

For become a DP stock broker require a minimum net worth of Rs 50 lakh & the

aggregate value of the portfolio of securities of the beneficial owners held in

dematerialized form in a depository through him should not be more than 100 times

the net worth. However, where the stock broker has a minimum net worth of Rs 10

crores, the limit on the aggregate value of the portfolio of securities of the

beneficial owners held in a dematerialized form in a depository through him would

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not be applicable. Moreover if seeks to act as a participant in more then one

depository, he should comply with this stipulation separately for each depository.

For the record, the number of active DP accounts in the country as of January '05

aggregates 5,002,106 compared to 4,166,196 accounts in February '04 & 3,340,828

in August '03.2

6-PORTFOLIO MANAGERS

Portfolio managers are defined as persons who, in pursuance of a contract with

clients, advise/direct/undertake on their behalf, the management/administration ofportfolio of securities/funds of clients. The term portfolio means the total holdings

of securities belonging to any person. The portfolio managers can be

Discretionary

Non-discretionary.

The first type of portfolio management permits exercise of discretion in regard to

investment/management of the portfolio of securities/funds. In order to carry on

portfolio management services, a certificate of registration from the SEBI is

mandatory. But for Category I & Category II merchant bankers, a separate

registration is not required to act as portfolio managers. They have, however, to

carry on portfolio management activity within the framework of the SEBI

regulations applicable to portfolio managers. The SEBI is authorized to grant &

renew certificate of registration as a prior permission to portfolio managers on

payment of the requisite registration/renewal fee. The annual registration feepayable to SEBI is Rs. 2.5 lakh for the first two years & Rs. 1 lakh for the third

year. The renewal fee is Rs. 75,000 per annum. He has also to give an undertaking

to take adequate steps for the redressal of grievances of clients within one month of

the receipt of the complaint, keep the SEBI informed about the number, nature &

other particulars of the complaints & abide by its rules & regulations. A

certificate/renewal must be made three months before the expiry of the validity of

the certificate.

2 Equitys talk of the small townSeptember 5, 2005, Capitalize corporate Database.

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Minimum portfolio size is Rs 500000 for both stock broking company

7- Responsibilities:

The portfolio manager can invest funds of his clients in money market instruments

or as specified in the contract but not in bills discounting, badla financing or for the

purpose of lending or placement with corporate or non-corporate bodies.

While dealing with clients funds, he should not indulge in speculative transactions,

that is, not enter into any transaction for purchase or sale of any security in whichtransaction is periodically or ultimately settled otherwise than by actual delivery or

transfer of security. He may enter into transactions on behalf of the client for the

specific purpose of meeting margin requirements, only if the contract so provides &

the client is made aware of the attendant risks of such transactions.

He should ordinarily purchase or sell securities separately for each client. However,

in the event of aggregation of purchase or sales for economy of scale inter se,

allocation should be done on a pro rata basis & at weighted average price of the

days transactions. The portfolio manager should not keep any open position in

respect of allocation of sales or purchases affected in a day.

8-RESEARCH

Recommendations about which securities to buy or sell & when to buy or sell them

are one of the features that attract clients to firms that provide such advice. These

recommendations, & the data that backs them up, are produced by research

analysts. Analysts often work in a separate area: the research department.

The information produced by analysts is distributed in a number of ways. In some

cases, the information is channeled to all the branches so that clients can use this

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information for taking the decision. Some firms produce written research reports,

which, these days, are often distributed through brochures & electronically.

Some of the information needed to determine when a recommendation is suitable

(appropriate) for a customer will be gathered from the client. Firm must Know the

Customer. in order to be sure their recommendations are suitable.

For the research purpose broking firms hire analyst & providing them facility &

infrastructure for research. Both type of analysis fundamental analysis & technical

analysis are used by analyst Research activity of the broking firm is not revenue

generating activities but a support activity. Increasing number of hedge funds,institutional investors & retail investor want research backed advice. So, in order to

survive in the competition firm should provide the research to its clients. Most of

the big broking house provides it.

9-MUTUAL FUND DISTRIBUTION

A mutual fund is simply a financial intermediary that allows a group of investors to

pool their money together with a predetermined investment objective. The mainadvantage of such a system is the professional portfolio management &

diversification that can be achieved as the economies of scale of managing huge

amount of funds come into play.

From a single player (UTI) in 1963, to about 29 players & 420 schemes (August

2005). From a highly concentrated industry (due to regulations & barriers to entry),

the industry opened up in 1993. This period saw a lot of private & foreign players

coming in. This period saw initial growth followed by a consolidation stage. Now

the time has come for the industry to grow at a different pace fuelled by the retail

wave which has been triggered by this Bull Run.

In most countries, the mutual fund industry is a relatively recent financial

innovation. A long standing literature on the diffusion of innovation shows that the

characteristics of consumers influence the speed of adoption (Rogers, 1995).

Generally, older innovations will typically have greater adoption, so our industry is

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roughly 40 years old (private sector being 10 years old) as compared to the 80 year

old US Fund Industry.

In India individual investors (including HNIs) are 97% of the investors by number

but Contribute only 41% to the assets whereas corporate contribute 57% of the total

assets. In contrast, individual Americans hold about 90 percent of total mutual fund

assets. Businesses, state & local governments, & other institutional investors hold

the remainder. In 2004, 92 million individuals in 54 million U.S. households owned

mutual funds. So it is very evident that so far the Indian Mutual Fund story has not

seen tremendous retail participation yet. An important thing to be kept in mind is

presently most of the mutual fund investors are concentrated in Mumbai & this isslowly changing. The effect of these changes will take time but the present Bull

Run will definitely help in changing the pattern. But expects to grow in future.

As a clear growth prospect in the future, most of the big broking firms are engage

in a distribution of the mutual funds.

10-INSURANCE DISTRIBUTION

Insurance is a contract between two parties. The insurer( The Insurance Co.) & the

insured( The person or entity seeking the cover)- where in the insurer agrees to pay

the insured for financial loses arising out of any unforeseen events in return for a

regular payment of premium.

In insurance sector government has allowed private players to engage the business

of insurance. Currently there are 13 non government life insurance companies are

there like Birla Sun life, ICICI Prudential, Bajaj Alliance, etc. Non life there are 6

non government players like Reliance General Insurance, ICICI Lombard, &

IFFCO Tokyo etc. Different brokers are working as a distribution agent for these

companies like India bulls promotes the Birla Sun life Insurance & thereby earning

the commission on that.

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11- IPO DISTRIBUTION

Due to the growth, many companies require long term capital. Primary market is

the best way to fulfill the requirement of long term capital. To issue capital via

IPO, there are lot many intermediaries in primary market like merchant bankers,

Bankers to the issue, Registrar & Transfer Agents, Underwriter, Broker to an issue,

etc. To distribute this IPO, broker provides services as they are more close to

general investors.

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