Domestic brokers in India are starting to challenge their larger international counterparts, according to a report by consultancy group Celent.
The study, ‘Institutional Brokerages in India: Domestic Brokerages Take Up the Challenge’, predicts that local brokers will account for 50% of trading in institutional equities by 2015, compared with 35% in the last year.
While overseas brokers have used global relationships and technology to dominate the market in recent years, the report notes that local brokers such as Kotak Securities, ICICI Securities, Motilal Oswal and Edelweiss have sought to broaden their product offering, improve their technological infrastructure and become more service oriented.
“Domestic brokerages are no longer content to play second fiddle and are more comfortable using the latest technology and engaging foreign vendors,” said Anshuman Jaswal, senior analyst and author of the report.
Part of the predicted increase in the market share of domestic brokers will be due to the growth in electronic trading, which the study forecasts to rise to 50% of total trading activity in 2015, from 10% in 2009, as more domestic institutions adopt the practice.
The study also notes the growing popularity of direct market access (DMA) among proprietary trading desks and domestic mutual funds, and the increasing use of algorithms for the equity markets. Tight regulatory restrictions on algorithms have led many firms to use low-touch DMA, which requires more human intervention compared to direct DMA. According to Celent, DMA in India accounted for 5% of trading by institutional brokers in 2009, but this is expected to rise to 35% by 2012.
Unlike trends seen other in market centres across the world, Celent suggests proprietary trading is likely to increase in India to 32% of total trading in 2012, from 22% in 2007.
“Celent believes that [the rise in proprietary trading] indicates a different stage in the development of the brokerages in India, which have yet to reach the levels of proprietary trading that exist in the developed western markets, and also have greater confidence in the continued growth of their economy and capital markets,” read the report.