Market intermediaries feel forced to shut down business amid low turnovers

Prolonged bearish trend of the country's capital market threatens the survival of intermediaries. A majority of them are unable to meet expenses with income derived from operations.

The situation is so dire that stockbrokers, merchant banks and asset management companies may feel pushed to cut down workforce as bearing the expenditure of their current set-ups seems no longer possible.

Talking to The FE, many of them said they would have to close business if the market failed to bounce back.

The intermediaries generate income in the form of commissions or charges on services provided to clients and by managing their own portfolios, IPOs (initial public offerings) and mutual funds.

The stockbrokers, which are comparatively stronger financially, have continued operations with the advantage of large capitals.

For example, IDLC Securities has experienced a 60-70 per cent plunge in its daily turnover, leading to a significant erosion of daily income. To ease the financial stress, the company has injected a portion of its capital into fixed-income securities.

"Returns from fixed-income instruments are helping us survive," said Md. Saifuddin, managing director of IDLC Securities.

Small companies with small capital will be forced to close operations if the market does not bounce back soon, he added.

Because of limited products and services, the survival and earnings prospects of the market intermediaries are directly linked to the benchmark index and daily turnover values.

Earning a good sum from operations in the market has been more or less challenging since 2013.

The Dhaka Stock Exchange (DSE) featured a daily average turnover of less than Tk 5 billion between 2013 and 2016. After an improvement in daily share transactions in 2017, the premier index has witnessed low turnovers throughout since the year after.

The year 2021 was an exception when the DSE experienced a daily average turnover of Tk 14.74 billion. Funds were injected into the market from different sectors as businesses remained sluggish due to the pandemic.

In most of the sessions executed in January this year, the DSE posted turnovers below Tk 4 billion, intensifying the crisis stemming from the bearish market.

Industry insiders said top brokers, which are subsidiaries of large companies including banks, would be able to stay afloat.

"Stockbrokers can somehow manage operations if daily turnover is at least Tk 6 billion. It's difficult to survive in the existing situation," said Ahsanur Rahman, chief executive officer (CEO) of BRAC EPL Stock Brokerage.

The brokers that have large setups and huge human resources have been facing more difficulties, compared to companies run by limited staff.

Some organisations have expanded business through an increased number of branches. LankaBangla Securities has 42 branches, UCB Stock Brokerage has 26 branches while BRAC EPL Stock Brokerage has 12, IDLC Securities 10, Shanta Securities 6 and City brokerage 6 outlets.

These entities have made extra investments in research and technology to provide quality services but are now facing hardships in continuing operations amid low turnovers.

The situation facing stockbrokers of the Chittagong Stock Exchange (CSE) is worse as the bourse's turnover is much lower than that of the Dhaka bourse.

For example, the port city bourse on Monday posted a turnover of Tk 39.46 million, only 0.91 per cent of the turnover of the DSE on the same day.

Hence, 162 stockbrokers of the CSE are struggling to survive with income generated from market operations.

"Many of them have already reduced their overhead costs… some brokers are bearing the expenditure with income from other businesses," said CSE Managing Director M. Shaifur Rahman Mazumdar.

Against the backdrop of the bleak situation, experts raise questions about the relevance of too many stockbrokers, asset management companies (AMCs), and even the CSE operating in the small market.

The DSE has 307 active TREC (trading right entitlement certificate) holders. There are 66 merchant banks and 67 AMCs. The sufferings of market intermediaries that are bent under the heavy weight of negative equity are more severe.

Merchant bankers are in a crisis too as they offer similar products as stockbrokers.

Vice Chairman of Shanta Asset Management Arif Khan said a medium size AMC needs to meet an expenditure of around Tk 30 million per annum while a large firm has an annual expenditure of Tk 50 million.

"It has not been possible to earn such amounts of profits from the market in the last two years. Most funds experienced negative returns during the period," he said, adding that the market was expected to improve in 2025.

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