Block for secondary trades may hit discount brokers’ pricing model The proposal of the Securities and Exchange Board of India (Sebi) to introduce an Asba-like block mechanism for the secondary market will reduce float, increase working capital requirements and borrowings of brokers, impact brokerage rates and lead to further consolidation in the broking industry, said experts. The move, if implemented, will help protect client funds and securities from the possibility of misuse or default by a stock broker. This will, however, impact the float available with brokers and the interest income on float. Accordingly, brokers may have to increase brokerage charges to offset the impact. This is similar to Application Supported by Blocked Amount (Asba)-like facility already available for the primary market which ensures that money from an investor gets moved only when an allotment happens. “Misuse of funds by brokers will go down drastically since most of the money will be handled by clearing corporations (CCs). Brokers, who are dependent on 90-day float money, will be forced to do a rethink on their business models and pricing structure. The present rates, especially of discount brokers, cannot be sustained,” said B Gopkumar, CEO, Axis Securities. Smaller brokers will face a bigger problem because they may not have the money to pay margins to the exchange, he said. At present, these brokers take client margins, park it as fixed deposits and take a bank guarantee against that. According to Icra, brokers will not be required to allocate any collateral for clients under the UPI block facility since CCs will directly maintain or update the client collateral value. This may lower compliance burden on brokers. However, the move will result in an increase in the working capital requirements and borrowings of brokers as some brokers partially use clients’ funds for placing margins on bank guarantees (BGs), and such BGs are placed with clearing corporations. Besides this, the investment in developing necessary interfaces will go up. Also read: Bank Nifty tanks more than 3%, here’s why; these PSU stocks are leading losses “The trend of consolidation in the broking industry is expected to continue, with smaller broking players ceding market share to more established broking entities. Overall, the proposal, if implemented, will further strengthen the industry structure and improve financial discipline, which is critical, given the fiduciary responsibility of brokers,” said Icra in a recent note. According to the Sebi proposal, the UPI mandate service of single block and multiple debits can be integrated with the secondary markets to provide a block mechanism. Under the proposed framework, funds shall remain in the client’s account but will be blocked in favour of CC, which can debit funds from the client’s, limited to the amount specified in the block. While a UPI block shall be considered towards the collateral, upon creation, the same shall also be available for settlement purposes – the block can be debited multiple times subject to available balance. Settlement will be done by CC directly with clients for funds and securities, without any need to go through the pool account. “While it could be relatively easier for investors of discount brokers, brokers offering online platforms and bank brokerages where the investors could be tech-savvy and familiar with the nuances of the UPI block, challenges could remain for migrating other customers. Some temporary incentives could be provided to investors for faster adoption of the UPI block,” said Icra.
The move had also prompted the country’s largest organised retailer Reliance Retail to step into the value retail segment with Yousta, which was announced on Thursday. Like Intune, Yousta began its operations in Hyderabad, with plans to expand across the country. Intune has three stores – two in Hyderabad and one in Dombivli, near Mumbai, with plans to add another three more outlets in the coming months.
Nair had admitted on a recent earnings call that the apparel segment in general was witnessing moderation and that the value retail foray by Shoppers Stop could help the company tap into the growing trend for affordable fashion and lifestyle products, aiding sales growth.
That was an important statement for Shoppers Stop, which reported a nearly 37% year-on-year drop in net profit to Rs 14.5 crore in the June quarter of FY24, even as revenue grew only 4.8% versus the previous year to nearly Rs 994 crore.
On a yearly basis, the company had last reported a net profit of nearly Rs 114 crore in FY23 after three consecutive years of loss between FY20 and FY22 due to the Covid-19 pandemic. FY23 topline also jumped nearly 60% year-on-year to Rs 4,022 crore, the highest in six years, its results showed.