SBI-Broadening Triangle

Small Broking Business - Future Outlook

Small Broking Business- Future Outlook

Brokerage business has never been so attractive in India. With the unprecedented Bull run which has pushed Sensex to 15,000 plus level from the modest 3000 level in 2003, the brokerage business has also seen its golden days. Listed brokerage firms are quoting at a PE multiple of 22 and higher. With increasing retail investor participation in equity markets, the picture may be much rosier in coming times.

However, the same period has also witnessed a sea change in broking business in terms of brokerage, trade execution, market depth, use of technology and concentration. While brokerages used to charge 2.5% per Rs. 100 in 1990, it’s come down to 0.25% today with some brokers even offer better terms like 0.15% or Rs. 9 per transaction. Approximately 19% of the total trades being executed on bourses are taking place through online.

In spite of the above facts, the market and the future outlook is not very encouraging for the Small Broking houses. Retail investors who have traditionally been clients of small neighborhood brokers are continuously being lured by the Big Brokerage Houses with lower brokerages. For a small broker, the path is very thorny as it can not compete with the large players in terms of financial strength which translates into low/discounted brokerages. Further, today’s changing scenario demands huge and continuous investment in technology which in itself is a big deterrent for growing continuously in real terms.

A large player like Reliance has the capacity to absorb losses for a few years and thus become a big threat to the existing brokers, big or small by capturing a very large chunk of market. The big broker can manage to change its business model but competition may put the small brokers out of business altogether.

This calls for a sea change in the business model of the Small broking houses. They need to find innovative ways to attract as well as retain clients alongwith managing the revenue and costs. A few verticals which can be the best bet for SMB segment are Personalized Investment/Wealth Management Solutions, NRI Fund Management, Portfolio Management and Investment Advisory Services. These are a few services which provide value addition to the investors/traders and for which he is willing to pay the premium.

By providing these premium services, the Small & Medium sized broking firms can create a niche for themselves which will help in a healthy topline growth. Further, this will also help them in managing the “Continuity of Business” risk. By de-liniking a major part of their revenues from trade execution business, they may safeguard themselves from the impact of bear markets when revenue streams tend to dry up due to abysmal level of retail investor participation.

A couple of Triangles

With the market crack, a number of stocks which were under in-decisive mode have shown negative colors. A couple of stocks with Negative Pattern Break Outs are here.

Failed Triangle Breakout- Indiabulls

The short-side entry was not triggered and the stock gave a breakout on long side. Fast action is expected in the stock.

Reverse Head & Shoulder MTNL

Symmetrical Triangle- Indiabulls

Island Reversal on Sensex

There is an island reveral on Sensex.

An island reversal means that current trend is over.

Hence, the recovery starting from 16th march may be under threat.

However, the pennant boundry and the gap on 20th march may act as supports.

It'll be wiser to wait for Sensex to go below 12300 before shorting the index.

For short-term trading, if market goes below 28th march's low, shorting can be done with SL at the new Gap and target at the gap on 20th march as well as the lower boundry of pennant.

IT Sector- Impact of Re Appreciation

Industry Major and Index heavyweight Infosys makes a failed triangle.

The overall sentiments in IT sextor are summed up on CNX IT Chart.

NIFTY-Double Bottom

NIFTY has confirmed a double bottom on daily charts and has improved marginally over the target of failed pennant. The target of confirmed double bottom is 4050.

Earlier it had made a double bottom on Hourly charts and has achieved its target of 3865 yesterday.

Patterns- 21st March

Patterns for the Day:-

IBP - Support-Resistence Line Break

RelCapital- 1-2-3 Pattern with Trendline Break

Bharti:- Diamond- Upside Breakout.

NIFTY- Failure Pennant

NIFTY & NIFTY Futures are demonstrating the failed pennant pattern like some of its heavyweight constituent.

But one needs to be careful, Sensex has still to give a breakout from similar pattern. However, if sensex closes above yesterday's high today, it will confirm the breakout.

Further, resistence may be expected around 13000 level being both a psychological level as well as values of 20DMA & 20EMA.