The exuberance of the equity markets seen prior to the emergence of the U.S. sub-prime mortgage crisis had attracted many to venture into equity broking business. Even the old-timers in the business spread their wings and expanded. But a lot has changed after the emergence of U.S. sub-prime mortgage crisis, Lehman Brothers bankruptcy, debt-crisis in the Euro zone; which all led to a state of uncertainty and brought in turbulence for the equity markets.

Investors who went all went gung-ho once about investing in equities and invested near the top of the Indian equity market (at 21,000 levels in 2008), have now become risk averse. This is because most investors have not made money in the past 5 years. And although the Indian equity markets did near the earlier top of the markets, most investors - especially the retails ones - aren't enthused and their interest in direct equities is waning.

In this backdrop, the Indian broking business is experiencing stressful times. According to the data available with the Securities and Exchange Board of India (SEBI), a total of 487 brokers have shut shop thus far in 2013-14. So, on an average, three brokers have called it quits each day since the financial year that started April 1. This has brought in a period of consolidation in the Indian broking business. Recently, even the bigger player such as HSBC India and India Infoline announced a shutdown of their retail broking business.

The reason for shutdown...
Well, the most prominent reasons for the shutdown have been:

• Declining participation of retail investor (which has dropped to a 10 year low);
• Declining volumes in cash segment of the equity markets; and
• Increased trading in low-margin options.
  
  

You see, overall volumes in the Indian equity markets have been on a rise; but it is the derivative trades that have attributed to the increase in proportion of the turnover.

It is noteworthy that according to SEBI data, 591 brokers have exited operations from the cash segment, while 104 additions were made in the derivatives segment; thereby resulting in number of brokers who have shut shop to 487.

PersonalFN believes that the interest of retail investors in the Indian equity markets could wane further, as the domestic macroeconomic fundamentals appear downbeat and the global economy too doesn't have an optimistic economic scenario to portray. PersonalFN thinks that during such times, retail investors would continue to be risk averse and they would move to fixed deposits and gold. You see, during the exuberant phase of the Indian equity markets many retail investors were ill-advised by some brokers to indulge in trading for quick gains. But having got some of their bets wrong and not created much wealth in equities in last 5 years, it seems that retail investors have opted to stay out.

Having said that, PersonalFN believes if you created a well-crafted portfolio of stocks giving due weightage to fundamentals and stay invested for the long-term, then equities as an asset class can help you create better inflation-adjusted returns and tax efficient returns over the long-term. If you aren't having enough experience and expertise in buying stocks directly, then investing through equity oriented mutual funds may do well to your portfolio. But again you need to adopt enough prudence to select only winning mutual fund schemes for your portfolio. Also you should ensure that you aren't going overboard about investing in equities, and stick to your asset allocation drawn as suited for your risk profile.

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