PROJECT ON

BROKERAGE
HOUSE

1
 Authorization

The report/project on “BROKERAGE HOUSE IN KOLKATA” was undertaken for the

partial fulfillment of the requirements of the M.B.A. program 2nd semester, year 2008-

2010, ICFAI BUSINESS SCHOOL, Kolkata.

Submitted to:

Prof. Ravi Kumar

(Signature)

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 Acknowledgement

We acknowledge with thanks, the support of ICFAI Business School, Kolkata under

whom this report was undertaken. We take this opportunity to express our gratitude and

warm thanks to all those persons who have guided, cooperated and inspired us to

complete our project work

We would like to express profound gratitude to Prof. Ravi Kumar, our respected faculty,

for his invaluable support, encouragement, supervision and guidance. His moral support

enabled us to complete our project work successfully.

We would also like to thank shopkeepers of Mullik Bazar, Chandni Chowk, Jadubabur

Bazar and other interviewees who were interviewed for gathering primary data

contributing to this study. This project would not have been possible without their help.

Lastly, we would like to thank all other concerned people, directly or indirectly related to

the report for their support which has motivated us to prepare and come up with the final

outcome.

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TABLE OF CONTENTS

Serial Content Page

No. No.
I Authorization 2
II Acknowledgement 3
III Executive Summary 6
IV Objective 7
V Scope 7
VI Introduction 8
VII Effects on Environment & Human health 8-9
VIII Management of E-Waste 10-12

IX Methodology 12

X Analysis

• On Consumer Survey 13

• On Electronic Shops Survey 19

XI Key Findings 19
XII Recommendation 20-21
XIII Conclusion 22
XIV Appendix 23-24
XIV References 25

Executive Summary

"E-waste" is a popular, informal name for electronic products nearing the end of their

"useful life. "E-wastes are considered dangerous, as certain components of some

electronic products contain materials that are hazardous, depending on their condition and

density. The hazardous content of these materials pose a threat to human health and

environment. Discarded computers, televisions, VCRs, stereos, copiers, fax machines,

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electric lamps, cell phones, audio equipment and batteries if improperly disposed can

leach lead and other substances into soil and groundwater.

Kolkata is considered as the economic centre of eastern India. E-waste is Flooding the

city of joy, the volume of e-waste generation in Kolkata is nearly 9,000 tons annually,

with 3,000 tons contributed by computers and their peripherals. The major hotspots for E-

waste trade and recycling in and around Kolkata are Chandni Chowk, Princep Street,

Ballygunge, Maniktala, Phoolbagan, Kadapara, Rajabazar, Gopalnagar and Howrah.

From environmental and health hazard perspective the study makes a shocking disclosure

about the extent of un-organized recycling of electronic waste. The scrap dealers

themselves lack information about the environmental and health impacts of hazardous e-

waste recycling. They employ women and children of low income group for manual and

rudimentary process of recovery of material. All the survey done shows that a lot of effort

is needed to spread the awareness about E-waste and a proper management should be

done for it.

Objectives
The objective behind doing this project is to know:

1. Whether there is any awareness about the e-waste hazards among individuals.

2. Are different companies like IBM, Wipro doing anything to manage the e-waste.

3. Where recycling is done in Kolkata.

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 4. How it affects the health of employees who are engaged in the process of

recycling e-waste.

5. If there any scope of industrialization of recycling sector.

Scope

In Kolkata there is un-organized sector of recycling.

• Choice of environmentally sound technologies/processes for e-

waste recycling including control of emission/discharges and

disposal of E-waste recycling wastes.

• Environmentally sound recycling of Printed Circuit Boards (PCB)

including control of emissions/discharges and disposal of E-waste

recycling wastes.

• Identification of the E-waste, which can be recycled by the SSI

Sector and large sector organization.

• With the help of State Government these unorganized sector can get legal

licensed and become part of organized sector giving its employees better and

healthy environment to work in.

Introduction

TURMOIL OF BROKERAGE HOUSES

The Indian Equity markets tumbled as weak global news and concerns about the future of

the US/European economy coupled with continued instability in the global banking

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system pulled equity markets sharply lower. FIIs have consistently been major sellers to

pull out their investments from emerging markets like India in order to create liquidity by

selling their investments. As far as Europe and USA are concerned, the scenario is

unfolding into the biggest banking crisis in 100 years. India thankfully, is saved on

account of conservative policies of the RBI and measured approach to reforms in the

financial sector.

But, steadily shrinking turnover on the bourses is taking its toll on the bottom-line of

leading broking houses, as can be seen from the latest quarterly numbers for the sector.

Compared with the April-June quarter, bottom-lines of many leading broking houses

have nearly halved even though the topline has seen only a marginal decline.

Net Sales- Sep'08 YoYChg(%) Net Profit - Sep'08 YoYChg(%)

CentrumCapital 7.28 -50.64 -0.51 -106.87
Edelweiss Capital 249.59 15.65 43.6 -22.6
Emkay Global Fin Services 26.99 -5.4 0.26 -93.95
Geojit Financial Services 47.69 -0.83 2.3 -75.22
IL&FS 69.35 -22.57 -26.83 -299.48
India Infoline 276.5 41.59 40.02 11.04
Indiabulls Securities 114.94 -15.2 33.37 -37.7
JM Financial 102.06 -38.7 -0.38 -101.9
Motilal Oswal Fin Services 131.76 -11 20.49 -26.16

Source NSE (RsCrore)

JM Financial, Emkay and Centrum are among the broking firms that have seen a steep

decline in their net profits on a sequential basis. Others like Edelweiss Capital, Geojit

Financial and India Infoline have witnessed a decline of Net Profits around 32%, 36%

and 18% respectively during the same period.

The results paint a bleak picture for broking firms. Most of the listed firms have reporte

d either a fall in Net Profit or at best only a marginal rise in their bottom-line for the

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period.

EFFECTS ON BROKERAGE FIRM DUE TO TURMOIL IN

FINANCIAL MARKETS

1) Thousands of housewives, college students and new part time traders out to make

a quick buck during the bull run spending hours glued to the trading screens are not

traceable.

2) Till last year, broking firms had been on a reckless expansion spree, adding

branches and manpower across cities. The move was driven partly by the lure of high

valuations, as overseas players were keen to buy stakes in domestic broking firms. With

turnover having dropped sharply, the same firms are now struggling to sustain their

branch networks.

3) The plight of the smaller broking companies is even worse as they are struggling

to meet their margin obligations due to liquidity constraints. In October, trading terminal

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of 95 broker members are deactivated in the futures and options segment and 29

deactivations occurred in the cash segment. In September, the terminals of 36 broker

members were deactivated whereas in August it was only 11. There were 885 active

trading members in the F & O segment and 984 in the cash segment on NSE in October.

(Source NSE).

4) Demat demand dries up and IPO’s withdrawn

“Power on India on”

NewDemat Accounts
New Additions
January 13.15
February 5.62
March 2.33
April 1.31
May 2.19
June 1.8
July 1.7
August (-)0.7
September 0.95

First time investors came in droves early this year during the Initial public offering of

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Reliance Power. In January, more than 13 lakh Demat accounts were opened.

But since the price crash in the secondary markets in the second quarter of FY 08-09, a

number of big IOS’s were withdrawn. The primary market has almost dried up with no

big companies planning to float an initial or follow on public issue till the condition

stabilizes.

Investors Demat account with NSDL & CDSL together stood close to 1.5 crore as on

November 8. CDSL could open only 3000 Demat accounts in October while NSDL could

add 92000 accounts in the same period. Most brokerage maintain Demat account of their

clients for smooth transactions. Therefore this drying up of Demat accounts has

significantly affected their numbers.

STEPS TAKEN TO COMBAT THE TURMOIL

1. Small broking companies take variable pay route

The variable pay model has come to the rescue of small and medium scale broking firms
that are battling the bear hug. The variable pay proposition seems to be helpful for those
firms which are not keen to trim down their headcount even though the market is in
turmoil.

Whoever gets business for the company gets to share a certain percentage of the income
so earned, apart from the basic salary drawn by that person. A mid size broking
house(Standard Asset Management limited) had opted the system last year during the
boom time and is reaping the benefits in the current situation. During the boom period
everyone was able to meet the individual target and wanted a share in the profit. They

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were interested in variable salary and not in fixed salary. The brokers did not have to pay
attention to cost factor because the size of business was more than their expectation.

1Today the volume of business has reduced to a one fourth. So it has become
imperative for broking firm to take into account the cost factor. The variable
pay system now works to the advantage of broking firm than the employee.

2. Alternate source of revenue.

The ongoing turbulence in the equity market has forced the broking firms to look for
alternative options to keep the cash register ringing. Some may call it as innovation or
others may term it as desperation. Faced with shrinking appetite for equity market
offering, broking house have taken to repackaging their old products. “old wine in a new
bottle” while some broking house have started making calls to sell insurance policies,
others are marketing housing and commercial projects of major real estate players.

• The spice of commodities:

The intense volatility in crude has sparked interest among all sectors. Most broking house
believe that commodities should account for around 10%-15% of investor’s portfolio.
The logic given for this was that it was important to build a portfolio for alternative asset
(gold) that have low correlation with equity.

• Marketing real estate project

Clients of online brokering major ICICI Direct have been receiving regular mailer
offering discounts on major real estate project. Recently clients of ICICI direct were
offered a pre launch discount on a Bangalore based township project being developed
DLF. Also the clients have received mailers on behalf of realtors like INDIA BULLS and
Parsvanath.

• Investing in ETF Mutual Funds

small investors are easily attracted to Gold while market falls. With the availability of
Exchange Traded Mutual Funds,broking firms are leaving no opportunity go by

• Selling third party insurance products –

India Infoline added to its kitty rs 16 crore by selling insurance products

• Fund management for PE entities

• Selling ad space on websites

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india infoline earned more than 20 crore in the quarter ended September 30 by selling
space on its website which accounted for nearly 7% of the total revenue. Diversification
into non-capital markets or relatively immune areas like life insurance distribution and
consumer finance business could give some stability to the top line and improve the
bottom line in the long run.

`3. credit limit to HNI clients and sub-brokers

Most broking time have reduced the credit limit extended to the HNI clients and sub
brokers and moreover the margin money in case of future and options contracts have
been increased significantly given the current volatile conditions.

4. Advanced brokerage

Firms like IDBI paisabuilder have launched schemes of advanced brokerage wherein the
brokerage RS 2500 + service tax is paid in advance and the same amount is adjusted
against future trades. Advantage to customer , brokerage on trading reduced by 50 %

5) Brokers say they are more cautious about their expenditure and cutting costs to save
their profits from being further eroded. Expansions plans are therefore facing hurdles as
broking companies are not finding any takers for franchisees. In some cases, they are
restructuring business and combining two branches that are nearby.

OTHER OBSERVATIONS

1)Brokers indulging in malpractices for conflict of interest in deals –

The ministry is particularly concerned about the alleged practice of stock brokers trying
to make a quick buck by using their knowledge of an impending and price moving large
transactions by their clients. The broker who advices and executes large deals for their
clients often purchases the same security in his own account as well later they allegedly

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sell them off for a profit when the larger purchase in their clients account pushes up stock
prices.

Here the same entity acting as an advisor as a trader is making economic gains by ‘Front
Running’. The dual role could pose a conflict of interest when the broker own stake
comes in the way of professional advice to clients. The insider regulation so SEBI does
not cover such activities as the broker does not have prior knowledge regarding a
company, but acts only on cues from his clients orders.

2) Impact of short selling-

When a stock is perceived to be overpriced and speculators, who do not own the stock
aim to

Profit from a potential price correction, they sell it short. In the cash market, since all
sales have

to compulsorily result in delivery on settlement day (T+2) or face auction and penalties,
short

sellers have to borrow stock to deliver it.

But FII’S and all domestic investors can easily take a shorting view on the equity
derivatives market by either selling a NIFTY or stock futures or by buying a put option
on Nifty or a stock. Our analysis of the open interest positions in future and options on
Nifty and stock on NSE’s equity derivatives segment and discovered that there were no
signs of active short selling.

Interest Wide Open

Put Options OI value (RsCrores) Call options OI value (RsCrores) Futures OI value (RsCrores)
Nifty 15294 Nifty 17095 Nifty 11782
Reliance Industries 193 Reliance Industries 413 Reliance Industries 1646
Infosys Technologies 47 Bharti Airtel 203 Reliance Petroleum 623
Reliance Infrastructure 90 ONGC 249 SBI 664
ICICI Bank 47 Reliance Petroleum 174 ICICI Bank 578
Reliance Petroleum 44 NTPC 133 L & T 563
62other stocks 213 125other stocks 1395 257other stocks 15132

3) Impact on stock prices of broking firms- The woes of financial crisis are reflecting
in the stock prices of broking firms. Most of them have fallen more than 75% from their
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high early this year. The stock price of Edelweiss capital has fallen from its peak of
nearly Rs1800 to Rs298.shares of prime securities are available at Rs18, nearly one-
twentieth of their peak a few months ago.

NEGATIVERETURNS CMP 6monthsreturn_%)

Indiabulls Securities 19.55 -82.87
Emkay Global Fin Services 30.05 -72.62
India Infoline 38.5 -75.37
Motilal Oswal Fin Services 51.3 -66.78
Edekwiss Capital 257.9 -64.72
JM Financial 22.75 -61.76
Religare Enterprises 315 -19.68

MARKET ROUND-UP

Two conclusions have met wide spread acceptance , one the financial market as we know
them no longer exist and we are not sure what is going to take its place, two the US-
authorities actions –in coordination with counterparts around the globe have taken risk
out of the system.

Our focus should be more on how India gets impacted .first why are FIIS selling? They
are selling not because they do not like India but because they need to liquidate their
investments, unconcerned about the fact whether a particular stock is undervalued.

Next important question –would the Q3 FY09 and Q4FY09 results of corporate India
reflect the turmoil the global markets have gone through. Maybe because pressure on
margins is coming from the high interest rates, high raw material cost and tight credit
scenario.

However positive for India for the medium to long term lying the fact that inflation is
likely to decrease by March 2009.RBI is likely to focus more on growth, interest rate will
also stabilize.With the global shock surely the market will come down, no matter what
the fundamentals no matter what the valuations, but slowly and steadily as economic
growth bounces back equity markets will start reflecting that.

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Methodology
Data were obtained using semi-structured interview schedules. Two types of schedules
were used, namely, those for interviewing the consumers and those for interviewing the
shopkeepers of the selected old age shops, to obtain the requisite information on the
below described aspects:

• Design two type of questionnaires for primary data collection

1. Awareness of e-waste among the common public

2. The shopkeepers or dealers.

• Survey: It is done for the consumers as well as that of electronic markets.

• Graphical analysis

1. Inference from the graph

2. Conclusion drawn from the inference

• Examination of secondary data

• Recommendations

Key Findings
EQUITY MARKET IS NOT FOR GAMBLERS

Some excerpts of an interview with Atanu Ghosh, Regional Sales Manager, IDBI
Paisa Builder
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Over the past five years what are the changes that you have seen in the broking
business?

Retail investors are much more demanding on research and institutional investors are
much more demanding in terms of overall service experience. Business model for retail
broking is changing. From my experience, I can say that we have moved from a pure
broking house to an outfit offering complete wealth management solutions. Most of the
broking houses in India have changed in a similar manner as retail participants have
become very important for our business. Earlier, the retail aspect of the business for many
players was not very important. But slowly that is changing.

Why has the retail investor become so important?

Going by the GDP growth of India and considering the fact that savings form more than
30% of the GDP, we expect that retail investors will start allocating their wealth to
equity markets in their portfolio. Even if this happens through mutual funds, it is not a
concern as long as they participate. Currently, a large chunk of investments for most
retail investors is in bank deposits, gold and real estate. Slowly, this ratio has to change.

How important is technology for the industry?

Technology has never been so important. Our Stock Exchange are the best example.
Over the years, our exchanges have realized the importance of technology and now the
results are clear to see. We have got the best risk management systems-dematerialisation ,
internet trading-which are all associated with technology. In a way technology has
increased retail participation in the markets and also has increased the transparency
levels.It has empowered investors and brought a new class of investors to the market. It
has also made information into a commodity. Earlier information was at a premium, now
there is too much information and much of our research deals with separating the right
information from the noise.

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Has the attitude of retail investors changed towards investing in equities?

Most investors look at equity markets on a very short term basis. And that is what worries
us.People want instant returns. For some people holding a stock for more than one day
becomes an investment.This is worrying. If you want to gamble then equity market is not
really the place.You should be going to casinos for gambling. This attitude is on the rise.
Retail investors are becoming more trigger happy. I believe that 90% of the people who
invest in the markets for shorter term end up losing money and only 10% who are more
focused on the longer term are the winners. What makes these 10% different is the fact is
that they are disciplined and do not fall prey to day to day events.They have a long term
and disciplined approach to investments.

Over the past five years what are the changes that you have seen in the broking
business?

Retail investors are much more demanding on research and institutional investors are
much more demanding in terms of overall service experience. Business model for retail
broking is changing. From my experience, I can say that we have moved from a pure
broking house to an outfit offering complete wealth management solutions. Most of the
broking houses in India have changed in a similar manner as retail participants have
become very important for our business. Earlier, the retail aspect of the business for many
players was not very important. But slowly that is changing.

Why has the retail investor become so important?

Going by the GDP growth of India and considering the fact that savings from more than
30% of the GDP, we expect that retail investors will start allocating their wealth to equity
markets in their portfolio. Even if this happens through mutual funds, it is not a concern
as long as they participate. Currently, a large chunk of investments for most retail
investors is in bank deposits, gold and real estate. Slowly, this ratio has to change.

How important is technology for the industry?

Technology has never been so important. Our Stock Exchange are the best example.
Over the years, our exchanges have realized the importance of technology and now the
results are clear to see. We have got the best risk management systems-dematerialization,
internet trading-which are all associated with technology. In a way technology has
increased retail participation in the markets and also has increased the transparency
17
levels. It has empowered investors and brought a new class of investors to the market. It
has also made information into a commodity. Earlier information was at a premium, now
there is too much information and much of our research deals with separating the right
information from the noise.

Has the attitude of retail investors changed towards investing in equities?

Most investors look at equity markets on a very short term basis. And that is what worries
us. People want instant returns. For some people holding a stock for more than one day
becomes an investment. This is worrying. If you want to gamble then equity market is not
really the place. You should be going to casinos for gambling. This attitude is on the rise.
Retail investors are becoming more trigger happy. I believe that 90% of the people who
invest in the markets for shorter term end up losing money and only 10% who are more
focused on the longer term are the winners. What makes these 10% different is the fact is
that they are disciplined and do not fall prey to day to day events. They have a long term
and disciplined approach to investments.

So whets lacking in the, market?

Markets is doing well in its own. Now it’s time to introduce new products. Investors are
getting matured and wants customized products. The developed economies have some
very interesting products to offer investors of equity market. We need to now move in
that direction. Asset management companies are now worried about their corpuses. High
corpus insures higher fees.

Do you think it’s the foreigners who rare directing the fate of Indian market?

It is true that India was put on the global market by the foreign investor but the country
has its own positives, why else will these investors look at our country. In any case the
local investors is becoming very powerful. Bust most importantly it has evolved into a
global market now. So one should not put the fate of market in the hands of a particular
category. I don’t agree to it, I think all classes of investors are equally important.

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 Turnover during the last 10 months for IDBI Paisa Builder

Quarter Wise Details

Q4 07' Q3 07' Q2 08' Q1 08

3165.00 3072.00 2435.18 1063.84
912.00 1659.00 1039.14 96.28
4606.00 4007.00 1473.22 700.49
3756.00 2166.00 1094.98 814.17

Month Wise Details

October/08 Sep'08 Aug'08 July'08 June'08 May'08 April'08 March'08 Feb'08 Jan'08
1136.1
1388.00 8 674.00 625.00 399.34 312.47 352.04 1556.00 787.00 822.00
2119.0
1667.00 837.22 399.00 237.00 236.50 320.95 143.04 1155.00 0 1332.00
1725.0
426.00 437.98 377.00 280.00 242.01 303.42 268.74 817.00 0 1214.00
578.00 314.14 489.00 236.00 75.60 15.55 5.13 191.00 339.00 382.00

Recommendations

Considering the severity of the problem, it is imperative that certain management options be

adopted to handle the bulk e-wastes. Following are some of the management options suggested

for the government, industries and the public.

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Responsibilities of the Government: The government must ensure that following

measures are taken:

• e-waste policy and legislation

• Encourage organised system recycling

• Collecting fee from manufacturers/consumers for the disposal of toxic materials

• Should subsidise recycling and disposal industries

• Incentive schemes for garbage collectors and general public for collecting and handing

over e-waste

• Awareness programme on e-waste for school children and general public

Responsibility and Role of industries:

1. All personnel involved in handling e-waste in industries including those at the policy,

management, control and operational levels, should be properly qualified and trained.

Some are given below:

 Use label materials to assist in recycling (particularly plastics).

 Create computer components and peripherals of biodegradable

materials.

 Utilize technology sharing particularly for manufacturing and de

manufacturing.

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2. Companies can and should adopt "reverse production" system that designs

infrastructure to recover and reuse every material contained within e-wastes metals such

as lead, copper, aluminum and gold, and various plastics, glass and wire.

Responsibilities of the Citizens: E-wastes should never be disposed with garbage

and other household wastes. This should be segregated at the site and sold or

donated to various organizations. While buying electronic products opt

for those that:

o are made with fewer toxic constituents

o use recycled content

o are energy efficient

o are designed for easy upgrading or disassembly

o utilize minimal packaging .

Conclusion

One thing for the brokerage firm is sure the marketplace won’t give them leverage, the
regulators won’t give them leverage and so we are now sure that the model of free
standing booking firms based on turnover of capital markets is history.

Diversification into non-capital markets or relatively immune areas like life-insurance

distribution and consumer finance businesses could give some stability to the top-line and
improve the bottom line in the long-run.

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Appendix:

References:

1. www.thetelegraph.com

2. www.google.com

3. Toxic Link, NGO, Delhi. Web page: www.toxiclink.org

4. www.cpcb.nic.in

5. www.wikipedia.com

6. www.greenpeace.com

7. www.ewasteguide.info

8. www.kolkata.org.uk/location.html

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