Indian Stock Brokers go Bankrupt with Rise of Algorithmic Trading

The Indian Stock Brokers have seen a very tough past couple of years after the Lehman crisis.Most of the larger listed Indian  investment banking companies have seen their valuation and stock prices keep touching all time lows.The reason is that competition has been fierce as a number of domestic and foreign brokerages entered the financial industry in 2008 during the boom.While the stock market volumes have gone down substantially the number of players fighting for a shrinking pie have  gone up.

While the larger stock brokers have seen reduced profits,the smaller ones have had to shut down or sell.This trend has been exacerbated last year with the rise of computer controlled algorithmic trading.Most of these small brokers which used arbitraging strategy to generate profits have seen their main business evaporate.Retail investors in India have also avoided the stock market which has become a corruption landmine.With even top institutions like GMO,Goldman becoming victims of frauds,individual investors have no chance.Also market operators have made the Indian stock market a pump and dump heaven even as SEBI takes a long time to crack down on the abuses.

Other reasons for the failure are

a) Decrease in cash volumes which decreases the brokerage

b) Securities transaction tax

c) Importance of Technology which requires higher investment

Read about the major Financial Companies in India and the Top Banks in India

Indian Stock Market Issues

1) Corruption– Scandals and Scams seem to be hitting India daily with stocks taking massive hits.The Third  Largest Indian Conglomerate Owner recently paid the highest fine in history to settle insider trading charges.Note that group has seen the biggest losses in the last 2 years with stocks losing 80-90% of their value.

2) Inflation – The Indian Central Bank has been guilty of being behind the curve in raising interest rates like some of the other counterparts in Asia.As a result,inflation has been flaring into double digits.Food inflation is touching nearly 18% in a country where 80% of the citizens make less than $2/day

3) Income Inequality – Keeps on increasing as the businessmen-politician-bureacrat nexus drains India dry.$2 Billion home coexists with most of the world’s hungry

4) Social Unrest (Naxalism) – India’s PM recently said that Naxalism was India’s biggest problem .This home grown terrorism is due to massive poverty and disillusionment in the tribal and rural areas of the country.

5) Oil Price – As Oil Prices touch $100/barrel,India’s problems seem to multiply.India imports 80-90% of its massive and increasing oil requirements. India gives subsidy on oil products leading to monetary and fiscal headache for the government.If it raise the domestic prices,it leads to political and inflation problems.If it does,it leads to massive losses for PSU Oil companies and increasing fiscal deficit.

Here are some links for  Indian Stock Market Investing Pitfalls

• Indian Stock Market New Day Old Story – Promoter -> Land Scam -> Stock Plunges -> Huge Investor Loss

• Indian Small Cap Index,ETFs (SCIF,SCIN) get Massacred by Surfeit of Scandals

• LIC Housing Finance Crashes with PSU Bank Stocks on Loan Scam in a Satyam Deja Vu

• Why Indian Stock Market can be Hazardous for Investing – Lack of Information,Regulation and Enforcement

• India’s Booming Stocks Fail To Discount Huge Risks due to Herd Mentality of Institutional Investors