Khyati Dharamsi

Mumbai: Way back in 1906, Vilfredo Pareto, Italian economist, underscored the unequal distribution of wealth when he observed that 20% of the people owned 80% of his country's wealth.

Some 102 years later, the 'Pareto Principle' is at work on the bourses, maybe even more askew than the axiomatic calculus.

A study on Indian brokerages by Dun & Bradstreet (D&B), the information services provider, says 80% of the turnover in India's stock market is contributed by just 100 brokers out of a total 9,000. That is, 1.11% of brokerages rack up four-fifths of the total trade.

And the asymmetry is increasing because more and more trading terminals are owned by the top brokers.

At present, 193 broking houses own 90,000 or 93% of the total terminals. A year ago, 210 brokerages held 43,565 or 90% or the total terminals in India, the report said.

"The concentration level is very high," said Kaushal Sampat, chief operating officer of Dun & Bradstreet. However, brokerages contend the intermediaries space is still fragmented.

"There are a lot of brokers who are involved in proprietary trade. Also,many would have a card but might not be actively trading. The market cannot be called a controlled entity. It is still fragmented. The largest broker would be having around 8% of the market share," said Tarun Sisodia, head of research at Anand Rathi Securities.

Experts said consolidation is a natural corollary of such concentration.

R Balakrishnan, executive director at Centrum Capital Services, concurs, saying volumes include two things ---customer based-trading and proprietary trading.

"How much of the volume is customer-driven one doesn't know. In large broking firms, there are around 40-50 dealers trading only for the prop books. Currently, capital adequacy requirements are low. As a result, many brokers have kept a card for their own trading. There are too many brokers chasing the business. At a later date, consolidation might happen and such traders would sell out. But, currently, the retail participation is small," Balakrishnan said.

Sisodia said consolidation will not happen just to increase market share. "It will happen because brokers want to grow. If a brokerage does not have presence in, say, the south, it will acquire a brokerage with a presence in the area. This can happen only when we are in the maturity phase. Right now we are in the growth phase and maturity is at least 3-4 years away."

The author of the D&B report, Bandi Ram Prasad, said at the current juncture there is an amount of comfort that exists with the fragmented market.

"As and when equity trading sees the launch of complex products or a need for higher levels of skillsets consolidation will take place. We have not reached the stage where smaller firms find existence unviable."

Source : DNA