Broking houses undergoing structural shifts: Crisil

Structural shifts in the broking business include a distinct shift in trading pattern to “low-yield derivatives, increase in algorithmic trading, and intensifying competition from foreign players in institutional broking,” ratings agency Crisil said

New Delhi: Amid significant slowdown in capital market activity, Indian broking houses are undergoing structural shifts and are venturing into new businesses such as asset and wealth management, which are likely to contribute 50% of their profits in the next fiscal year, reports PTI.

Due to structural changes in the business environment and slowdown in capital market activity, the profits of Indian broking houses are expected to nearly halve in the current financial year (2011-12) compared to the previous year forcing them into newer territory.

Structural shifts in the broking business include a distinct shift in trading pattern to “low-yield derivatives, increase in algorithmic trading, and intensifying competition from foreign players in institutional broking,” ratings agency Crisil said.

“Broking houses have already begun responding to these challenges by reinventing their strategies. In their core business, they have been realigning cost structures, and focusing on superior and differentiated services,” Crisil Ratings director Ramraj Pai said.

Due to some of these fundamental changes in business, the pressure on broking houses during the current downturn will be more prolonged than in the previous one in 2008-09, Crisil said and added that to counter this brokerages are diversifying their businesses.

“Diversification is another strategy with players entering new businesses such as asset and wealth management, retail lending, and insurance,” Mr Pai added.

Asset and wealth management business had contributed just 25% of the broking houses’ profits in fiscal year 2010-11. But come financial year 2012-13, nearly half of the consolidated profits of broking houses are expected to come from these businesses, Crisil said.

Crisil Ratings director Nagarajan Narasimhan, however, believes though broking houses will face several challenges while implementing these strategies, their comfortable capitalisation will continue to support their credit risk profiles in this process of transition.

The aggregate net worth of CRISIL-rated broking houses was nearly Rs16,000 crore as on 31 March 2011.

The report further noted that lending books of the large broking houses are expected to triple by March 2013, particularly in two key segments—loans against property and gold loans; these segments will constitute around 45% of the book by March 2013.

The retail lending book of these players will triple to Rs30,000 crore by end-March 2013, from the March 2010 level.

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UN report pegs India growth at 7.7% in 2012, 7.9% in 2013

The report cautioned, “The downside risks to the regional outlook have sharply increased in recent months... particularly in case of India. Double-dip recessions in Europe and the United States would have a significant impact on economic activities across South Asia”

New Delhi: India’s economic growth rate will remain subdued at 7.7% in 2012 and 7.9% in 2013 as downside risks have increased, mainly on account of problems in Europe and the USA, reports PTI quoting a United Nations report.

“India’s economy is forecast to expand at a pace similar to 2011 in the following two years... at 7.7% in 2012 and 7.9% in 2013,” the UN report on ‘World Economic Situation and Prospects 2012’ said.

The report cautioned, “The downside risks to the regional outlook have sharply increased in recent months...

particularly in case of India. Double-dip recessions in Europe and the United States would have a significant impact on economic activities across South Asia.”

The government recently lowered the gross domestic product (GDP) growth target for the current fiscal to 7% from the earlier estimate of 8.5%.

However, the study gave a positive outlook on South Asia’s economic growth prospects and projected that the region’s economies will grow by 6.7% and 6.9% in 2012 and 2013, respectively, accelerating beyond the 6.5% growth rate experienced in 2011.

South Asia constitutes India, Pakistan, Nepal, Iran, Bangladesh and Sri Lanka.

The report also raised a red flag on India’s fiscal deficit target, saying the Indian government is unlikely to achieve its deficit target of 4.7% of the GDP for 2011-12 as lower growth has brought down tax revenues and disinvestment in state-run companies has been put on hold.

Nevertheless, the study has given a positive outlook for India’s job market, saying, “India is enjoying gains in employment rates.”

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Maruti, General Motors hike vehicle prices by up to Rs17,000

The two auto majors have hiked prices to offset the impact of input costs and foreign exchange fluctuations

New Delhi: Auto majors Maruti Suzuki and General Motors India have increased the prices of various models by up to Rs17,000 to offset rising input costs and the impact of currency fluctuation, reports PTI.

Maruti Suzuki India (MSI) has hiked prices of its vehicles across models, except for entry-level sedan DZire, by between 0.3% and 3.4%. This translates into a minimum increase of Rs2,400 on the SX4 sedan and a maximum of Rs17,000 on the diesel variant of its Swift hatchback.

When contacted, a spokesperson of MSI said the price hike is effective from Monday. The company had stated it would hike the prices of its models to offset the impact of rising input costs and foreign exchange fluctuation.

Before the hike, the SX4 sedan was priced between Rs7 lakh and Rs9.11 lakh (ex-showroom Delhi), while the Swift diesel was available at prices ranging from Rs5.27 lakh to Rs6.47 lakh (ex-showroom Delhi) for different variants.

The company’s best-selling Alto model will also become dearer by Rs4,000 against the current price tag of between Rs2.32 lakh and Rs3.31 lakh (ex-showroom, Delhi).

Maruti sells a variety of models, ranging from the M800, which starts at a price of Rs1.97 lakh, to the top-end Kizashi, which comes with a price tag of Rs17.5 lakh (ex-showroom, Delhi).

The company has not touched the price of the DZire sedan as it will launch a new version next month.

GM India has also increased product prices by between 0.5% and 1.75% for models including the Spark, Beat, Cruze and Tavera, translating into an increase ranging from Rs3,000 to Rs15,000.

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