Loss-making stockbrokers may not last six months
With the Colombo Stock Exchange (CSE) indices at historic lows, certain stockbroking houses will have to close shop in the next six months, market analysts say.
This is because the brokers’ commissions are not enough to segregate between 24 stockbrokers and on top of that the low money circulation has put them in a spot.
Analysts noted that broking houses with strong parent companies will survive on the backing of the main company but standalone broking houses will face difficulties. "Already they are in a bad situation. It will get shoddier in the next six months if things don't turn for the better," an analyst told the Business Times.
Already some broking houses have advertised saying they are for sale. Some others are embroiled in a regulatory battle with the authorities.
Navara Securities ( Pvt) Ltd, TKS Securities, Claridge Stockbrokers and Nation Lanka Equities ( Pvt) Ltd stopped business last year. In January 2018, NSL decided to adopt t h e Vo l u n t a r y Inactivation of Business Operations while the CSE had decided to prohibit NLL from trading activities from October 2017.
The industry is trying to latch onto hopes that the country’s economic growth will not fall below targets in 2019 despite the fallout from the Easter Sunday terror which was what Finance Minister Mangala Samaraweera said recently.
He said that the growth outlook for this year has not dimmed at all but skeptics say it's going to get much worse.
Currently, the CSE is trading at the historically low price to ear nings of 8.6. Banking counters are trading at 0.6 of book value. In such a market, the operating cost for brokering house is at Rs.5 million per month at the lowest, according to brokers. It is therefore not worth being in the market, they say.
They are also finding fault with the authorities for not expediting derivatives demutualisation ( the process by which an existing member- owned, mutually operated, non- for- p rofit stock exchange is changed into a shareholder- owned, commercially operated, for- profit corporate entity) and delivery versus payment systems that can advance the stock market. "We need to have different products to sell and it is not happening. The due processes are not taking place and it is frustrating," a stockbroker noted.
Analysts say that without the highest level commitment, the critical pieces of the capital market development puzzle will continue to be incomplete and any institutional- level
master plans will face implementation challenges.
Asha Phillip Securities Ltd broking firm which was a joint venture between Phillip Securities of Singapore and M. M. Udeshi was renamed as Asha Securities Ltd following the withdrawal by Phillip Securities in early May. They own 40 per cent. "They aren't infusing cash - basically they aren't participating because along the way they lost interest," an industry source told the Business Times. Phillip Securities didn’t participate in the company’s Rights Issue in March with the rest subscribing for it and remaining shareholder, M. Udeshi who owned 60 per cent, raising his stake to 80 per cent.