BPR and everyone,
In a business like this, a business of scale, only the people who have the scale survive. For every 1 Ryan air or Air asia or Indigo( 100 others fail), For every 1 easy group 100 others fail, for every 1 micromax 100 others who tried the same failed, for every 1 amazon 100 others failed... that is the law of nature.
In case of airlines or any other business which focuses on giving discounted prices, if the business goes bust there is nothing much to loose for us the end user. But in case of a financial services firm, if it goes bust, so will our money sitting with them. This is a broker, do you remember what happened to Global Trust bank?
All those who are in the delusional world of, your money is safe with your brokerage, excuse me, did you just see what happened with NSEL? that was an exchange itself.
I am a CA and was part of a research team for an international brokerage who was looking at viability of business in India. They eventually decided not to, but my job during that time was to do an industry analysis, that is when I ended up seeing balance sheet of all the brokerages and landed on this forum.
Today cost of being a broker on NSE and BSE is around Rs 3 crores, including your backoffice cost, office space and initial setup cost. The running cost is atleast 10lks/month. I am assuming this if the person is using NSE NOW where technology is free. But if they have their own technology another 70lks/year in fixed cost.
If this broker charges Rs 1000/client he needs to get 1000 active clients for making Rs 10lks and another 1000 clients to recover initial investment cost. Probably another 500 for recovering his advertisement cost.
That is 2500 active clients before he sees any money.
Now coming to the very interesting part, Reliance money with over 200 branches had only 7000 active clients. Indian markets are highly inactive and I can bet that most of the brokers that you have mentioned will have less than 500 active clients. So you know how much time before they go bust, they will be burning at Rs 5 to Rs 10lks per month. The deeper the pocket the longer they might last.
But if they go bust, let me tell you my friends, you are not getting any money back from anybody, NSEL is a good case in itself. The reason we didn't have any till now is because, this model was not really there till now. RK Global was the only one running it and he has real estate business to support the brokerage business. The promoter to be precise has actually lost interest in brokerage business now.
Cost of membership has remained the same, actually dropped in case of BSE, so there are a lot of entities with no credibility entering the business. A seat on NYSE costs 20 million dollars, on NSE less than 0.3 million dollars. This figure has remained the same for the last 20 years NSE has been in business. 1.5crores to become a NSE member in 1994 was a really big amount then, 1.5 crores today hmmm there are thousands who spend that much on a car today.
In a business like this, a business of scale, only the people who have the scale survive. For every 1 Ryan air or Air asia or Indigo( 100 others fail), For every 1 easy group 100 others fail, for every 1 micromax 100 others who tried the same failed, for every 1 amazon 100 others failed... that is the law of nature.
In case of airlines or any other business which focuses on giving discounted prices, if the business goes bust there is nothing much to loose for us the end user. But in case of a financial services firm, if it goes bust, so will our money sitting with them. This is a broker, do you remember what happened to Global Trust bank?
All those who are in the delusional world of, your money is safe with your brokerage, excuse me, did you just see what happened with NSEL? that was an exchange itself.
I am a CA and was part of a research team for an international brokerage who was looking at viability of business in India. They eventually decided not to, but my job during that time was to do an industry analysis, that is when I ended up seeing balance sheet of all the brokerages and landed on this forum.
Today cost of being a broker on NSE and BSE is around Rs 3 crores, including your backoffice cost, office space and initial setup cost. The running cost is atleast 10lks/month. I am assuming this if the person is using NSE NOW where technology is free. But if they have their own technology another 70lks/year in fixed cost.
If this broker charges Rs 1000/client he needs to get 1000 active clients for making Rs 10lks and another 1000 clients to recover initial investment cost. Probably another 500 for recovering his advertisement cost.
That is 2500 active clients before he sees any money.
Now coming to the very interesting part, Reliance money with over 200 branches had only 7000 active clients. Indian markets are highly inactive and I can bet that most of the brokers that you have mentioned will have less than 500 active clients. So you know how much time before they go bust, they will be burning at Rs 5 to Rs 10lks per month. The deeper the pocket the longer they might last.
But if they go bust, let me tell you my friends, you are not getting any money back from anybody, NSEL is a good case in itself. The reason we didn't have any till now is because, this model was not really there till now. RK Global was the only one running it and he has real estate business to support the brokerage business. The promoter to be precise has actually lost interest in brokerage business now.
Cost of membership has remained the same, actually dropped in case of BSE, so there are a lot of entities with no credibility entering the business. A seat on NYSE costs 20 million dollars, on NSE less than 0.3 million dollars. This figure has remained the same for the last 20 years NSE has been in business. 1.5crores to become a NSE member in 1994 was a really big amount then, 1.5 crores today hmmm there are thousands who spend that much on a car today.
