Brokers try alternate source of revenue

Ashish Rukhaiyar
MUMBAI
Nov 25, 2008

THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.

Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.

Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.

India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.

Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.

Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.

Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.

Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.