Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: cpt :: TAX RATES - GOODS TAXABLE @ 4% :: due date for vat payment :: empanelment :: TDS :: VAT Audit :: form 3cd :: Central Excise rule to resale the machines to a new company :: VAT RATES :: list of goods taxed at 4% :: ACCOUNTING STANDARDS
 
 
« Markets »
 Why we must tweak the market-led model
 PE transactions prompt income tax queries over round tripping concerns
 Amended India-Mauritius tax treaty only covers investments in shares
 Government drops cap gains tax on startup shares held for 2 years
 Tax-free bonds regain demand in the secondary market
 Relevant Market’ Under Competition Act, 2002
 Indian markets best in terms of earnings momentum, price revision
 How India will become a common market with GST
 Broader markets outperform; Nifty holds 8,500
 Have Indian markets run ahead of fundamentals?
 Sebi mulls allowing foreign VCs in infra investment firms

Brokerages on resizing spree in clueless market
September, 05th 2008

They are among the biggest critics of companies with high and unsustainable cost structures. However, they appear to have fallen prey to the same. The fall in trading activity, due to a sharp downturn in stock markets, has resulted in brokerages being loaded with unduly high costs, mainly personnel and office rent, which are not commensurate to their current revenue flows. Analysts note that brokerages higher fixed expenses in comparison to revenues, which are variable given that their prospects are directly linked to the performance of stock markets, will leave them with little option but to relook at some of their cost priorities, especially staff. The current slowdown has already affected the profits of brokerages, with several of these seriously looking at rationalisation and restructuring, said Bandi Ram Prasad, a consultant at research firm, Dun & Bradstreet India.

While brokerages have already embarked on some cost-cutting measures by shutting down unprofitable branches, officials feel it is the question of time before they resort to trimming their staff, if the existing market conditions remain. A top official at a leading domestic brokerage said, most brokerages were well-capitalised after raising money through public issues and private placements in the last couple of years, but agrees that they would not wait for the tap to run dry. We will look at the market situation for another three-to-six months, before taking up any major cost-cutting, the official said.

Staff at brokerages that service retail clients would be most vulnerable to these cost-cutting measures, as this category of investors have stayed away from the market after the recent crash. In fact, if grapevine is to be believed, some top retail brokerages have already started asking their sales officials to leave, though their managers choose to remain tight-lipped about it. Staff at institutional brokerages may have some more breathing space, as domestic institutions still remain active in the market. But, the high competition in the segment and higher staff costs is squeezing margins at institutional brokerages. Deutsche Bank, in a recent report, said, broking companies typically have high operating leverage with approximately 50% of their costs being fixed. Operating leverage refers to the extent of a companys operating risk with regard to fixed expenses as against its variable costs. So, higher the fixed costs as a percentage of total expenses, grater would be companys operating leverage.

We believe declining volumes, coupled with high operating leverage embedded in their business, is likely to exert severe pressure on earnings in the near term, said Deutsche Bank analysts.

But, analysts feel higher costs for brokerages may not be limited to staff expenses. Cost structures generally are increasing across all the financial services segments in the background of increasing technology, distribution, product offerings, investor services and also compliance. In this perspective, business slowdown will pinch profit margins, said Dun & Bradstreets Mr Prasad.

To cut costs, brokerages are believed to be shifting their office locations to cheaper areas. In Mumbai, some brokerages are looking to shift core operations from prime office locations to suburbs. One institutional brokerage, which had booked an office space in a prime location during the market peak, has decided against moving, especially at a time when rentals are showing signs of easing. Some others are said to be in the process of renegotiating rentals.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Application Management Solutions Application Management System Application Management Software System Application Management Development Application Management Software Development

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions