To make investments worthy and valuable there is utmost need for a timely feedback. This has led to the involvement of a sub-broker who would offer research-based advisory on when and what to sell and buy. Here is an indepth analysis of the share brokerage franchise industry.

WITNESSING survival at the time of economic slump to revival post recession, the steady growth in the financial services market has brought back the boom in brokerage business. Responding to this optimism, the Indian stock market has seen a revival of sorts with a stable government at the centre and its continuity in policies. With the market turning positive, the growth of the financial services sector and its beneficiaries will be affected.

Financial services is a broad category. However, one of the prominent sectors within financial services is stock broking. Within the financial services, the stock broking services revenue is approximately Rs 7,200 crore. The daily average volume of trades done is in the range of Rs 95,000 crore. The market penetration of investors being served in the equity market still remains low. This has further led to the inception of bigger and better base of sub- brokers.

Opportunities galore

With returns on their mind while investing, investors need to be well-versed with the risk while investing, and must do a proper research to make healthy returns. Serving those needs are sub-brokers in all parts of the country who help an investor to make a wise decision.

The financial services industry has adopted the franchising route since the 90s. To meet high aspirations of tapping the retail market and providing its consumers a superior service, all brokerage firms are actively encouraging the growth and development of the sub-broker channel. Looking at the under-penetration of all financial products, most of the stock brokerage firms believe in increasing their presence in this segment by opening more offices across the country. The firms believe that having a presence through business partners gives them greater penetration, effectiveness and better reach to their retail audience. Franchising works wonders for the customers as well, as it not only helps them in being served better with the right technology and a robust platform of the brokerage firm, but it also ensures personalised services and timely advice from the sub-broker's end.

The treasure troupe

The financial services market in India is vast and wide spread involving a large number of players. The players include MNCs, private companies, partnership firms; bank supported companies as well as individuals. A majority of the market share in the institutional business is in the hands of about 15 MNCs and banking companies. Few large domestic stock broking houses have a combined market share of about 25 to 30 per cent.

The Indian brokerage industry has seen sub-brokers rising to new heights. Motilal Oswal and Raamdeo Agrawal had met as chartered accountants students in a hostel in sub-urban Mumbai. The company has its origin in a small partnership formed between them in 1987. They acquired membership at the Bombay Stock Exchange in year 1990 in the name of 'Motilal Oswal'. Out of all the large brokerage houses today Motilal Oswal has approximately 3.3 per cent market share in this industry (for the 9 months period, ended on Dec 2009).

On the other hand, Nirmal Jain had joined hands with two local brokers in the year 1994 to set up their equity research unit, Inquire-Indian Equity Research. His work has set new standards for equity research in India. In 1995, he set up his own business and founded the India Infoline Group.

Unicon, started as a sub-broker of Fortis Financial in the year 2004, is now known as Religare Securities. Today it has emerge as a one-stop investment solutions provider spreading its wings to close to 100 branches and 600 sub-brokers.

Anand Rathi Group (ARG) initiated its operations towards the end of 1994. Initially, the main focus of the group was consulting and catering to institutional clients. By 1997, the group had built significant inroads and presence in the institutional domain and decided to enter the retail segment also. Anand Rathi Financial Services Ltd. has a market share of about 2 per cent.

Overall Anagram Securities enjoys approximately one per cent market share across all segments. Anagram has a pan India presence through its own branches and sub--brokers. At present, it has 147 branches in 20 states and more than 1,300 franchisees and sub-brokers in about 125 towns across India.

Besides, there are examples of banks getting into franchising. Witnessing a low penetration of equity products among Indian investors, the success of technology in banking and financial services led ICICI to launch state-of-the-art web-based trading platform through ICICIdirect.com.

Expanding further

The market is poised to grow further with the increasing investment tenure in the market. Companies like Motilal Oswal today operate 1,293 outlets in total (as of December 2009), out of which 1,267 are franchise-owned and only 26 branches are company-owned.

According to Vijay Goel, Associate Director, Motilal Oswal Securities Ltd, “We find the opportunity for stock broking business to be very big in India. Franchisee model enables fast expansion of our distribution network in every part of the country.”

With the market picking up pace post slowdown all brokerage firms are keen on expanding. Each company has its own business model of brokerage franchising. Motilal Oswal works on the model of sharing the brokerage revenues with the franchisees.

Stating the company's expansion plans, Goel says, “We have plans to grow our distribution network multifold in the next few years. We have done a detailed study of potential cities and have plans to penetrate those cities much more than other cities. Prominent names are Mumbai, Kolkata, Delhi NCR, Bengaluru, Pune, Ahmedabad, Rajkot, Surat, Hyderabad etc.”

Sharing expansion plans of ICICI Securities Dharmesh Dixit, Head, Sub-Broker Channel, ICICI Securities, says, “We plan to reach additional 250 locations in FY 2010-11 through business partners.” As of March 31, 2010, ICICI Securities has grown to over 1,000 sub-broker outlets spread over 500 locations.

For Anagram, its best performing markets are Gujarat, Tamilnadu, West Bengal, Maharashtra and Orrisa.

Angel Broking plans to add more than 5000 franchisees this year across the country, particularly north, east and south. Angel Broking operates a total of 8,680 brokerage units out of which 8,500 are franchised, making it the company with the largest number of sub-brokers.

Sharing the expansion plans of Anand Rathi, Pradeep Gupta, Vice Chairman & Co-Founder Anand Rathi Financial Services states, “We have been continuing to grow in Tier I cities, the group is mainly targeting Tier II and Tier III cities for expansion.” Anand Rathi also follows a revenue sharing formula with the franchisees.

Profile base

Most of the brokerage firms do give importance to prior experience in the capital and financial services market.  

Sharing the franchisee’s profile Goel says, “Our franchisees come from various backgrounds viz., broking business, chartered accountants, mutual funds or insurance distributors and other non-financial services businesses. We find that entrepreneurs involved in full-time brokerage business coupled with distribution/ advisory of other financial products are more successful than others.”

On this, Dixit says, “While normally we prefer sub-brokers with prior experience in financial services, in exceptional cases, this norm can be relaxed.”

The slowdown acted as a medium towards sustainable growth for the financial services industry leading to consolidation of the market. Most of the companies not only increased their sub-broker network but also added new products to their portfolio.

India Infoline serves investors through its 2,500 sub-brokers, which are spread across the country. In smaller cities the share of sub-brokers in the retail market is more.

According to Nandip Vaidya, President  Equity, IIFL, “We are aggressively looking at the sub-broker division. We prefer the franchisee to have experience in the financial market and preferably in the capital market. The franchisee should have the available infrastructure wide enough to serve the masses.”

The present franchisee profile of India Infoline is for two categories; an individual investor and a large/ institutional investor.

Fastest growing market

After expanding in the major markets all the brokerage firms plan to go deeper in terms of presence and franchising comes as the right option. Franchising not only helps in expanding the network but also increases the client base with the help of franchisees.

In the first few years, ICICI Securities has been concentrating only on smaller towns. However, since 2008, its focus has been on strengthening sub-broker channel in Tier I cities and in the last one-two years it has received good business volumes from cities like Mumbai, Chennai and Kolkata.

For Anand Rathi, Maharashtra has so far been the best performing state in India.

Motilal Oswal has plans to grow its distribution network multifold in the next few years. “We have done a detailed study of potential cities and have plans to penetrate into these cities than other cities. Prominent places are Mumbai, Kolkata, Delhi NCR, Bengaluru, Pune, Ahmedabad, Rajkot, Surat, Hyderabad etc.” states Goel

Train to sustain

ICICI Securities has set up a structured handholding process for sub-brokers to ensure a smooth induction into this business. It has set up a comprehensive training programme for them and their employees, which cover critical areas like product understanding, business development