Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Markets will remain closed on May 13, 2021 on account of Id-Ul-Fitr (Ramzan Id).

Is stock broking a great business?
Wed, 24 Jun Pre-Open

After many years of lull, the bulls finally came back to the Indian stock markets in the latter part of 2013 in the run up to the general elections. After the Narendra Modi-led single majority government came to power, investor enthusiasm saw a new high. Investors who had shunned the stock markets in the aftermath of the 2008 stock market crash came back to the markets in droves.

As an investor, you might be tempted to consider investing in stock broking companies given that they are direct beneficiaries of bullish sentiments and increased investor participation.

Sure, the stock broking business may have received a boost in the current market scenario. But if that is the only reason you think makes a good case for investing in brokerage businesses, then let us caution you.

Let us consider the business fundamentals of brokerage firms.

Firstly, broking is a highly commoditised business, where the intensity of competition is very high. This means practically no bargaining power.

Secondly, the business is highly cyclical. Since the business depends on trading turnover, bear markets can be tough time for brokers. Particularly, market crashes can wreck havoc to the fortunes of brokers.

Here is proof...

After the 2008 crash, many small players had to shut shop.

The ones that survived diversified into other businesses. As per an article in The Economic Times, today none of the top brokerage firms get more than 10% of their revenues from the broking business. Some areas of diversification include real estate advisory, retail lending, property loans, health cards, gold refining, trading of renewable energy certificates, and so on.

In our view, if companies are forced to diversify into unrelated businesses simply to be able to survive tough times, then the long term durability of such businesses may be highly uncertain and unreliable.

As such, we believe it is best for long term investors to keep away from such business models.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

What else is happening in the markets today? Dig in...

Equitymaster requests your view! Post a comment on "Is stock broking a great business?". Click here!


Views on News

Top 5 Recent IPO Developments You Should Know (Views On News)

May 12, 2021

So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

How Did Mindtree Perform in Q4FY21? (Company Info)

Apr 20, 2021

Here's the rundown on the company's latest quarterly results.

Is Intraday Trading For You? (Fast Profits Daily)

May 13, 2021

Do you think you have what it takes to be an intraday trader? Find out in this video.

Beware! Not Every EV Stock Will Be a Tesla (Profit Hunter)

May 13, 2021

Analyse the business models of EV stocks before investing in them.

Are Value Funds Ready to Shine? (Outside View)

May 12, 2021

PersonalFN explains whether the recovery in value funds sustain after generating superior performance in the last one year.

More Views on News

Most Popular

The Next Smallcap Winners (Profit Hunter)

Apr 30, 2021

Price is the only due diligence one might require to buy this business.

Time to Buy Smallcaps? (Fast Profits Daily)

Apr 30, 2021

In this video, I'll show you why I favour smallcaps over the Nifty.

Are the Stock Markets Deaf to Covid Agony? (Profit Hunter)

May 6, 2021

Why are markets discounting the economic impact of Covid?

My Secret to Find Breakthrough Stocks (Fast Profits Daily)

May 7, 2021

I've used this trading technique for many years with great success. I'm sharing it with you today.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


May 12, 2021 (Close)