The short but powerful bull run from March 2009 to June 2009 was led by midcap and smallcap stocks—not only in India but all over the world. Retail investor participation suddenly increased and brokerages' valuations zoomed up. But the market fell again in June 2009 and midcaps fell, and along with them, brokerages' profits and valuation.
After that retail investor participation has been skittish except for a flash-in-the-pan period in December 2009. The worldwide market fall in January 2010 has wiped out retail participants. Again this has been a worldwide phenomenon. Almost all brokerages and investment banks in the world (except a few like Morgan Stanley) gave dismal results. And they all say the same reason. The retail guys and HNIs are into debt, protecting their capital.
But as serious students of market history know, this is the time to start accumulating quality mid and small caps that lie around, thrown away by the retail investor, especially in countries like India, where the next wave of retail participation will be led by young investors who are tech savvy and those who would have more and more money to spare. My reasoning is that when the next retail-led rally occurs the leaders will be brokerages since they are so much beaten down and will be the beneficiaries of the Indian "connected" youth. (This could even be akin to the boom in property stocks 2004-2007 which had the same reasoning: younger Indians' wealth and aspirations)
But here's the warning. We don’t know when this revolutionary retail boom will come about. And some small brokerages may even go broke during this waiting period. Consolidations and buyouts may occur. So take great care when selecting brokerages for long term investment look for these qualities:
(1) Cash rich or cash-assured with great reputation and staying power (My picks: Geojit BNP Paribas, India Infoline, Indiabulls Securities. Geojit has reputation for integrity and has the backing of one of the best banks in the world; India Infoline has recently been upgraded by Fitch and Indiabulls group is cash-rich.)
(2) having low-cost scalability and great software (offered free or cheaply) (My pick: Indiabulls securities. The quality of their java software--which costs just Rs.750--is unsurpassed even by multinationals like HSBC.)
(3) Lower expense ratio due to greater reliability of software (My pick: Indiabulls securities: They are not great employers, but they do get the most bang out each buck. In addition, they are the only brokerage rated by CRISIL for high security--as far as I know);
(4) Dividend yield while you wait for your mega yield. (My pick: Indiabulls securities: great dividend year after year.)
Remember: whichever sector gains in the next bull market, the broker always gains the most. And brokerages are dirt-cheap right now. But be prepared to wait for big gains.
After that retail investor participation has been skittish except for a flash-in-the-pan period in December 2009. The worldwide market fall in January 2010 has wiped out retail participants. Again this has been a worldwide phenomenon. Almost all brokerages and investment banks in the world (except a few like Morgan Stanley) gave dismal results. And they all say the same reason. The retail guys and HNIs are into debt, protecting their capital.
But as serious students of market history know, this is the time to start accumulating quality mid and small caps that lie around, thrown away by the retail investor, especially in countries like India, where the next wave of retail participation will be led by young investors who are tech savvy and those who would have more and more money to spare. My reasoning is that when the next retail-led rally occurs the leaders will be brokerages since they are so much beaten down and will be the beneficiaries of the Indian "connected" youth. (This could even be akin to the boom in property stocks 2004-2007 which had the same reasoning: younger Indians' wealth and aspirations)
But here's the warning. We don’t know when this revolutionary retail boom will come about. And some small brokerages may even go broke during this waiting period. Consolidations and buyouts may occur. So take great care when selecting brokerages for long term investment look for these qualities:
(1) Cash rich or cash-assured with great reputation and staying power (My picks: Geojit BNP Paribas, India Infoline, Indiabulls Securities. Geojit has reputation for integrity and has the backing of one of the best banks in the world; India Infoline has recently been upgraded by Fitch and Indiabulls group is cash-rich.)
(2) having low-cost scalability and great software (offered free or cheaply) (My pick: Indiabulls securities. The quality of their java software--which costs just Rs.750--is unsurpassed even by multinationals like HSBC.)
(3) Lower expense ratio due to greater reliability of software (My pick: Indiabulls securities: They are not great employers, but they do get the most bang out each buck. In addition, they are the only brokerage rated by CRISIL for high security--as far as I know);
(4) Dividend yield while you wait for your mega yield. (My pick: Indiabulls securities: great dividend year after year.)
Remember: whichever sector gains in the next bull market, the broker always gains the most. And brokerages are dirt-cheap right now. But be prepared to wait for big gains.
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