Efficiency And Benchmarking Of Indian Stock Broking Firms

Published Date: 02 Nov 2017

Guided by

Dr. I Krishna Murthy

Asst. Professor

College of Management Studies

University of Petroleum and Energy Studies

Submitted by-

Rohit Krishna

Enrolment no: R590211023

SAP ID: 500014649

upes_logo1

College of Management and Economic Studies (CoMES)

University of Petroleum and Energy Studies (UPES)

Dehradun, Uttarakhand (UK)

India

2011-13

Certificate of Originality

This is to certify that this dissertation is original in every aspect & sense of terms and conditions. During this research work no shortcuts have been taken and i have remained meticulous as well as caring during the work. I have put in my best efforts to keep this research as educational and specific as possible.

I would also like to point out that some assistance has been taken from the scope of professionally shared information and knowledge, a thorough and detailed narration of which has been provided in the references part of this report.

Dated:

Signature:

Rohit Krishna

Roll No.- 590211023

MBA – Energy Trading (2011-13)

University of Petroleum & Energy Studies

Dehradun

Acknowledgement

It is not possible to complete a project without the encouragement and guidance of other people and this project is no exception.

On the completion and submission of this project I would like to extend my sincere obligation and deep sense of gratitude to all people who have helped and guided me in this valuable endeavour. This would not have been possible without their cooperation, moral support and encouragement.

I am indebted and extremely thankful to my mentor, Dr. I.K. Murthy who despite being involved in his personal commitments guided and supported me through his valuable suggestions and experience which helped me to analyze the various aspects involved in this work.

I would like to extend my gratitude to University of Petroleum and Energy Studies for giving me this opportunity.

I would also like to acknowledge my family, colleagues and friends who always supported me morally and economically.

Rohit Krishna

Roll No.- 590211023

MBA – Energy Trading (2011-13)

University of Petroleum & Energy Studies

Dehradun

Executive Summary

In the current scenario no stock broking firm can afford to be an average performer in a competitive and healthy market. Therefore, Data Envelopment Analysis technique is being applied in this study in order to investigate and analyse the efficiency of the major stock broking firms operating in the Indian market for the period of 2008-2012. This technique is being employed as this approach helps in identifying and implementing optimal ways of improving the performance instead of the averages. The tool helps in generating new methods to enhance performance as compared to other similar approaches and techniques.

Five stock broking firms, namely, Geojit BNP Paribus, India Infoline, Motilal Oswal, Reliance Capital and Indiabulls have been selected to analyse the efficiency of these firms in the Indian stock broking market. This study adopts an input-oriented Constant Returns to Scale approach to measure and compare the efficiency of these firms and establishing a benchmark for their performance.

Motilal Oswal and Indiabulls have come out as consistent performers and have sustained their efficiency throughout the period of 2008-2012. Reliance Capital is also observed to be an efficient firm but needs to improve as its performance level has dipped in 2012. Another firm India Infoline has raised its level and matched the efficiency of the benchmark set. Only Geojit BNP Paribus needs to do extraordinarily well to increase its efficiency and match the benchmark as its efficiency has decreased considerably.

The inputs taken for the study cannot be assumed to be the only inputs to do a study and similarly other outputs may also be considered.

Nevertheless, the major limitation of the study is that this study does not analyse and provide us with the absolute efficiency of the stock broking firms. The stock broking firms which have been analysed as efficient according to this study are only best firms in contrast to the other stock broking firms taken into consideration which refers to that if new stock broking firms are considered or included in the study then the efficient firms may become inefficient.

Table of Contents

1.. Acknowledgement 3

2.Executive Summary 4

3. Introduction 7

4. Literature Review 11

4. Data and Research Methodology 19

5. Empirical Analysis and its Interpretations 24

5.1.1 Efficiency and Benchmarking Table of Stock Broking Firms for 2008 24

5.1.2 Slacks Table of Stock Broking Firms for 2008 26

5.1.3 Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2008..... 27

5.2.1 Efficiency and Benchmarking Table of Stock Broking Firms for 2009 28

5.2.2 Slacks Table of Stock Broking Firms for 2009 29

5.2.3 Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2009.....30

5.3.1 Efficiency and Benchmarking Table of Stock Broking Firms for 2010 31

5.3.2 Slacks Table of Stock Broking Firms for 2010 32

5.3.3 Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2010.....33

5.4.1 Efficiency and Benchmarking Table of Stock Broking Firms for 2011 34

5.4.2 Slacks Table of Stock Broking Firms for 2011 35

5.4.3 Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2011.....36

5.5.1 Efficiency and Benchmarking Table of Stock Broking Firms for 2012 37

5.5.2 Slacks Table of Stock Broking Firms for 2012 38

5.5.3 Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2012.....40

6. Findings 41

7. Limitations 43

8. Conclusions 44

9. References 45

Chapter 1 - Introduction

Stock Market

A stock market is a public entity where both listed and unlisted securities of a company are traded. It includes all the stock exchanges, stock trading and stock broking firms of the country. It is divided in two parts:

Primary Market- It is the part of the market that provides the channel for the generation of funds by dealing in new securities issued by government, companies and public sector institutions.

Secondary Market- It is the part of the stock market in which the securities like stock, bonds, and derivatives etc. which have been previously issued are traded. It is also known as the aftermarket.

From 2003, the Securities market of India has received attention globally from the investors due to the drastic improvement of the macroeconomic fundamentals. India’s competitiveness has increased due to the pool of skilled labour present and brisk world economy integration.

The securities market of India has grown in terms of:

The products traded in the market.

The amount that is raised from the market.

The number of issuers, intermediaries, investors etc.

Stock Brokerage Firms

Stock brokerage firms are those entities which guide the investors and help them when and where to invest money in the market. These firms provide precise knowledge in connection to the working of the stock market. They are very useful for an investor to guide them to achieve maximum market returns on their investment. There are basically two types of these firms:

Online stock broking firms and

Offline stock broking firms

These brokerage firms play a very important role in the market by assisting each and every trader irrespective of the investment expected from him. They play the vital role as intermediaries in the market and have been significant in developing the Indian market structure and making it fair and stable. Another critical function of these firms is that they provide the much needed liquidity to the market.

Due to the integration of the stock market with the developed & underdeveloped countries and the movement of investment freely across the borders of countries it has become very important to understand and have sound knowledge about the efficiency of the Indian stock market and the brokerage firms operating in it. The efficiency of these firms has important impacts and implications on the various investors and their investment policy in the market. In an efficient market the best expected return and risk will be reflected in the price of the stocks if knowledge about the stock is taken into account at that time. Hence, none of the overvalued stocks will offer lower than the expected return and the undervalued stocks will not offer higher return than expected. Each and every stock will be aptly priced and will offer optimal reward for the risk in the market. On the other side if the markets are not efficient then it would be better for an investor to identify the winning and losing stocks in the market and their right identification will improve the performance of the stock or the portfolio invested in.

The assessment of the level of efficiency of the stock brokerage firms is critical to set up the long term objectives for the stock market and in the economic development process of the country. Very few studies on the efficiency of the stock markets have been done. Hence, to test the efficiency and benchmarking of the stock broking firms this research work is being carried out.

The stock broking firms considered in this study are as follows:

Geojit BNP Paribus: The Company was incorporated in the year 1987 and is one of the leading stock brokers in India. It has a robust existence in the Gulf besides being based in Kerala and Kochi. It deals and operates in the cash equity and the derivatives section of the securities and also provides Portfolio Management for the investors. It is also engaged in the delivery of insurance and mutual funds. It has its stock listed on the National Stock Exchange and Bombay Stock Exchange.

India Infoline: It is a brokerage firm and a part of the India Infoline group that provides the financial solutions to the investors. It provides research and advice facility to its investors in various securities like Equity, Bonds, Derivatives, Commodity etc.

Motilal Oswal: The Company was incorporated in 1987, and provides the trading and brokerage services to its investors in the field of various securities. It provides and offers many other services like the Investment Banking, Wealth Management etc.

Reliance Capital Ltd: It is a part of the Reliance Group and excels in the financial services sector. It has a wide base of customers throughout India and has an approximately 2%-4% value of the total stock traded at the National Stock Exchange and the Bombay Stock Exchange. It offers and provides services for the Equity, Commodity, Derivatives, Insurance, Portfolio Management, Mutual Funds etc.

Indiabulls Securities: It is a division of the Indiabulls group and offers a wide range of stock market related services like Stock Broking, IPO, Currency Trading, Derivatives etc. It has a wide range of branches and sub-brokers in India.

This study derives the efficiency of the above given companies and compares the performance between them. This enables us to know the inefficiencies creeping in the organisation and what measures can be taken to overcome the inefficiencies. It also helps in setting a benchmark for the performance of these stock broking firms.

Chapter 2 - Literature Review

Chansrn Supachet (2008), The relative efficiency of commercial banks in Thailand: a DEA Approach

Published by International Research Journal of Finance and Economics, the study was aimed to examine the relative efficiency of the commercial banks in Thailand which were the members of the stock exchange of Thailand during 2003-2006. It also examines the relative efficiency of the commercial banks according to the different sizes i.e. large medium and small, characterized by the market share of their total assets.

The study uses two types of approaches to measure the relative efficiencies of the commercial banks.

The first approach is the operations approach in which the investigation of the efficiency of banks is done from the perspective of costs/revenues. Through this approach, the conclusion derived is that the efficiency of the banks during 2003-2006 are very high and stable with the average efficiencies being more than 90% each year.

The second approach is the intermediation approach which evaluates the efficiency of banks as intermediaries which use labours and capitals to transform deposits into loans and securities. The conclusion derived from this approach is that the average efficiencies of the banks are about 86% in 2003 and 2005 and 72% in 2004 and 2006.

Thus, it is concluded that the commercial banks of Thailand are noticeably more efficient during 2003-2006 via operation approach than via intermediation approach.

Mandal Kumar Sabuj and Madheswaran.S (2009), Energy Use Efficiency in the Indian Cement Industry: Application of Data Envelopment Analysis and Directional Distance Function

Published by The Institute for Social and Economic Change, Bangalore in 2009 the paper is aimed at measuring the energy use efficiency of the Indian cement industry, with the period of study being 1989-90 to 2006-07 and further estimating the factors which explain the variations between the firms in energy use efficiency.

Taking into consideration the objectives of the firm’s three alternative models are formulated in this paper to measure the energy use efficiency.

The first model used is the radical technical efficiency model which assumes that the objective of the firms in the industry is to reduce all the input used in the firm proportionately.

The second model used assumes that the objective of the firms is to concurrently increase the output and decrease the input by the same proportion.

The third model used assumes that the firms all the firms in the industry are encouraged to minimise the cost and decide upon the particular input bundle that minimises the total input cost of the firm.

The empirical study results point out the inefficiency in the Indian cement industry, which implies that the firms are not being able to use the energy consumed by them efficiently and a scope of improvement is there for using the energy efficiently and hence, saving more energy. But the prospective of saving energy depends on the behavioural objectives of the various firms and the probability of saving energy is much higher in the technical efficiency models in comparison to the cost minimisation models.

Further, a second stage regression analysis reveals that the firms which are greater in size have higher or greater energy saving efficiency but the age of the firms do not affect the energy efficiency of the firm.

Jemric Igor and Vujcic Boris (Feb 2002), Efficiency of Banks in Croatia: A DEA Approach

Published by The Croatian Bank, Public Relations and Publishing Department in Feb, 2002 analyses the Efficiency of the Banks in Croatian Banking market during the period 1995 to 2000 by using the Data Envelopment Analysis technique. The data has been taken from the balance sheet of the concerned banks.

The conclusion of the analysis states that the foreign owned banks on an average the most efficient than other banks and the old banks are inefficient in comparison to the new banks. The major reason for the ineffiencies of the old banks and the state owned banks were the non-performing portfolios in the previous systems which improved by the rehabilitation of these banks.

Further conclusions derived were that the smaller banks were internationally more efficient and the large banks were more efficient locally. The medium sized banks were the most inefficient in all specifications. The major reason for the inefficiency of state owned and old banks vs. the foreign owned and new banks was the number of employees in the banks and the amount of the fixed assets of the banks.

Yen Lee Foo and Othman Mohhidin (July 2011), Data Envelopment Analysis to Measure the Efficiency of Hotels in Malaysia

From the Department of Food Service and Management, University of Putra Malaysia, Malaysia and published in July, 2011 is a review paper to examine efficiency of the Malaysian hotels. The paper gives a review of the previous research done for the measurement of the Hotels in various countries. It states that extensive literature is available for United States, European, Taiwan and Indian hotels regarding the measurement of efficiency of the hotels but the empirical work on the same is missing in case of Malaysia.

This paper concludes that the efficiency of the Malaysian hotels can also be measured by the DEA approach by taking into consideration the various inputs and outputs.

Or.I and Sarica K. (2004), Efficiency Analysis of Turkish Power Plants using the Data Envelopment Analysis2004

From the Industrial Engineering Department, Bogazici University, Istanbul, Turkey analyses and compares the performance of 65 thermal, hydro and wind power plants owned by the private as well as the public sector. 3 types of models used in the analysis are constant returns to scale, variable returns to scale and assurance region. Comparisons have been made between public and private sector electricity generation plants and between natural gas vs. coal vs. oil fired electricity generation plants.

The major conclusions achieved from the study are:

The scale efficiencies of the renewable based power plants (not including very small size plants) show an exponentially declining trend with respect to the plant size.

The scale and global efficiencies of thermal based power plants show an exponentially declining trend with respect to the size of the electricity plant.

The scale global efficiencies of the thermal based power plants show a linearly escalating trend with respect to the utilization percentage.

An exponentially declining trend is seen with regard to the construction time in thermal based electricity generation plants.

The performance efficiency of the private sector power plants is greater than public sector plants as private sector plants have lower investment costs, more construction time and lesser utilization percentages.

Coal based power plants have inferior investment performance efficiency in comparison to the natural gas based power plants.

Private gas based power plants have slightly inferior investment efficiency than public gas based power plants.

Private thermal based power plants have considerably superior operational efficiency than their public counterparts.

The operational performance efficiency of the natural gas fired power plants is significantly higher than the coal and thermal based power plants.

Privately owned natural gas fired power plants have superior operational performance efficiency in comparison to the public sector plants.

The highest operational and investment performance efficiency is of the wind power plants.

Shahroudi.K, Taleghani.M and Mohammadi.G (Sep,2011), Application of the Two-Stage Data Envelopment Analysis technique for Efficiencies Measuring of Private Insurance Companies in Iran

Is a research done to determine the efficiency of the Iranian private insurance firms by the use of the traditional and two-stage DEA model during the time period 2007-2009. A technique known as Wilcoxon’s signed-rank test was used to recognise the major cause of the flaws between efficiency average of marketing sub-process and investment sub-process with the significant level being 0.01.

The outcome indicated that the traditional model of the DEA technique is not appropriate for these kinds of network systems.

The conclusion of the research indicated that the main cause of the deficiencies of Iranian insurance companies during the period 2007-2009 was the investment weakness.

Anderson I. Randy, Fok Robeert, Zumpano V.Leonard and Elder W.Harold, Measuring the Efficiency of Residential Real Estate Brokerage Firms

Published in the Journal of Real Estate Research this is an article which measures overall, technical, scale, pure technical and allocative efficiencies for section of residential real estate brokerage firms.

Further, regression analysis has been used to ascertain the firms and the market characteristics which influence the efficiency levels of the firms.

The outcome of the research shows that the real estate brokerage firms function inefficiently. The reason of the inefficiency is that these inefficiencies are a function of the suboptimal input allocations and their inability to work at constant returns to scale rather than from poor utilisation of the inputs. The Pure technical efficiencies of the real estate brokerage firms were quite high while the Overall efficiencies were very low. The low efficiencies are mainly due to the allocative and the scale inefficiencies.

The regression analysis points out that as the size of the firm is increased the efficiency also increases but when an additional multiple listing service is added and the operating leverage is also increased the efficiency of the respective firm decreases. It is also concluded that the density of the market and the type of the firms are not considerably related to any of the efficiencies.

Bhagavath Venkatesh, Technical Efficiency Measurement by the Data Envelopment Analysis: An Application in Transport

This study measures the technical efficiency of the State Road Transport Undertakings i.e. the STU’s. The model used for this research was the variable returns to scale model.

This study was based on the data collected of 44 Indian STU’s. Efficiency scores were calculated based on the model used.

The study concluded that out of the 44 samples taken only 8 of the STU’s had scale efficiency. Another notable conclusion was that the State Road Transport Undertakings functioning as companies were technically highly technically efficient than the others.

Ho Bruce Chien-Ta and Oh. K.B. (May, 2009), Measuring Online Stock broking Performance

This is a study which takes into consideration 28 online stock broking companies and calculates their performance during the period of 2003-2005. The model that has been used is the two-stage data envelopment analysis model and it distinguishes the effectiveness and efficiency of these firms.

The result of the study is that there is no correlation between the effectiveness and efficiency in these companies. The results point out that out of the 28 companies selected for the analysis the number of companies having CCR-efficiency operating effectiveness are five, the number of companies having CCR-efficiency in their operating efficiency are seven and the number of companies having CCR-efficiency in operating effectiveness and efficiency are only 2.

Dubelaar Chris, Tsarenko Yelena and Gabbott Mark, (2003), Performance Measurement in the Australian on-line Securities Marketplace

Published by MCB UP Ltd. this research paper investigates the efficiency in the operations of the on-line securities companies in Australia. For measuring the performance of these firms and securing the data to be used in this study interview of the marketing managers of the companies were done and the on-line plans and tactics of the companies examined and investigated. The research concluded that out of the seven companies considered for this research work four companies were capable of articulating the core value proposition and that two companies out of seven employed performance evaluation strategies in the on-line division of their trade. A direct connection amid the performance evaluation and value proposition could not be established by any of the seven companies. Lastly, the research concluded that the results obtained through the study have significant impacts because they point towards the inefficiency in theoretical as well as on-line performance measures of the firms.

Chapter 3 - Data and Research Methodology

Purpose of Study

This research will help to know the efficiency of the stock broking firms, namely, Geojit BNP Paribus, India Infoline, Motilal Oswal, Reliance Capital and Indiabulls, belonging to the category of best stock broking firms and which are listed on the stock exchange of India. The efficiencies and the inefficiencies of these firms will help the investors to decide through which firm they should invest in the market and also which of the above firms is the most efficient in its operations, investment and the returns from investments. It will also help in establishing a benchmark among these companies.

Objectives of Research

The objectives of the research are:

Understanding the concept of Data Envelopment Analysis technique and applying CCR Constant Returns to Scale (CRS) and Variable Returns to Scale (VRS) model.

Calculating the efficiencies and inefficiencies of the stock broking firms and establishing a benchmark among these companies.

Statistical Tools:

The different statistical tools used in this research are:

Data Envelopment Analysis: It is a powerful quantitative and analytical tool for measuring and evaluating performances of set of peer entities called Decision Making Units which convert multiple inputs into multiple outputs. From a set of available data DEA identifies the reference points (relatively efficient DMU’s) that define the efficient frontier and evaluate the inefficiency of the other, interior points (relatively inefficient DMU’s) that are below the frontier. (William W. Cooper, 2004, pp. 1-2)

Data Presentational Diagrams: Excel sheets etc.

Research Methodology

Research Objective:

To analyse the efficiencies and inefficiencies of the Indian stock broking and establishing a benchmark among these companies.

Research Method:

I have used exploratory research method as there are few studies done in this context which can be referred to, the aim of the research is to give an insight into a newly developed situation and the research depends on the secondary sources of data.

Empirical research is adopted as it is a way of gaining knowledge by means of direct or indirect observations. The observations can be analysed quantitavely or qualitatively.

Source of data

Secondary data:

It has been collected for the purpose this research from the following places:

Internet websites like moneycontrol.com etc.

Research papers and working papers published on the Data Envelopment Analysis.

Annual financial reports of the stock broking firms.

The data has been collected from 5 stock broking firms for the time period of 5 years from 2008-2012.

About Data Variables:

Six data variables X1, X2, X3, and X4 as inputs & Y1 and Y2 as outputs have been used in the research.

4 data variables taken as inputs for the analysis are:

Share Capital: It refers to the funds raised by the firm by issuance of various types of shares in return for cash and other considerations. The share capital is composed of both equity and preference shares.

Fixed Assets: It is a tangible property which is used for a long time by a company in its production process and generation of income. It is not used by the company or converted in to cash before one year’s time. E.g. Buildings, equipments, plants and machinery, furniture etc.

Salaries, wages, allowances and bonuses:

Salary is defined as the amount used by the company for the acquisition of the human resources and for the operations of the company. It is paid periodically to the employee.

Wages are paid to temporary workers of an organisation. It may be payable on a variable rate, weekly, hourly or on the amount of work done by the worker which can be quantitatively measured.

Allowances are the funds collected by the company over the period for a known purpose or function which may or may not occur.

Bonus is the sum of money provided to an employee by the employer apart from the regular pay in appreciation of the workers for his service or achievements.

Operating Expenses: It refers to the expenses of a firm incurred for performing its normal business operations. E.g. accounting expenses, office expenses, cost of goods sold etc.

2 data variables taken as outputs for the analysis are:

Cash and Bank: It refers to the amount held by the firm in the form of cash and in the bank accounts of the company. If the amount is in deficit it is known as overdraft.

Income from Operations: It refers to the profit earned by a company from the regular operations of the company in its area of primary business.

Important terminologies of Data Envelopment Analysis

Efficiency: Full (100%) efficiency is attained by any DMU if and only if none of its inputs or outputs can be improved without worsening some of its other inputs or outputs. (William W. Cooper, 2004)

Relative Efficiency: A DMU is to be rated as fully (100%) efficient on the basis of available evidence if and only if the performances of other DMUs does not show that some of its inputs or outputs can be improved without worsening some of its other inputs or outputs. (William W. Cooper, 2004)

Input Oriented Model: When the efficiency is calculated output over input with the stress on the decreasing the inputs in order to enhance the efficiency it is known as input orientation.

Output Oriented Model: When the outputs can be increased with respect to the capacity to raise the inputs in order to increase the efficiency of the organisation is known as output orientation.

Constant Returns to Scale ( CRS ) Model: According to this model it is assumed that the scale of economies of an organisation does not change with the increase of the size of the organisation.

Variable Returns to Scale ( VRS ) Model: According to this model it cannot be assumed that the scale of economies of an organisation is not affected or does not change as the size of the organisation or the facility increases.

Both these CRS and VRS models are known as "envelopment models".

Chapter 4 – Empirical Analysis and its Interpretations

Efficiency and Benchmarking Table for Stock Broking Firms for the year 2008

Interpretation of this efficiency and benchmark table for 2008:

Three out of these five firms are efficient.

Motilal Oswal, Reliance Capital and Indiabulls are considered efficient as their efficiency score comes out to be 1.

Geojit BNP Paribus and India Infoline have an efficiency score of 0.669 and 0.865 respectively indicating that these firms are inefficient due to their efficiency score being greater than 0 but less than 1.

This being an input oriented model the firms improve their efficiency or diminish their inefficiency by decreasing their inputs.

Geojit BNP Paribus can increase its efficiency by decreasing its inputs by 33.1% and India Infoline can do the same thing by reducing its various inputs by 13.5%.

Here the firms which are inefficient can monitor and study the benchmark firms they need to make up with.

The efficient firms may deem themselves to be the standard or benchmark. This means that Motilal Oswal is a benchmark for itself and same goes with Reliance Capital and Indiabulls.

Conversely the inefficient firms, the benchmark for them may be one or more of the efficient firms.

For Geojit BNP Paribus and India Infoline to achieve efficiency they need to employ an amalgamation of Motilal Oswal, Reliance Capital and Indiabulls.

Geojit BNP Paribus will try to be more like Motilal Oswal more than Reliance Capital and Indiabulls due to the lambda (Æ›) weights these firms which are 0.034, 0.032 and 0.027 respectively.

The same case applies to India Infoline due to the (Æ›) weights of Motilal Oswal, Reliance capital and Indiabulls being 0.233, 0.170 and 0.021 respectively.

Slacks Table for Stock Broking Firms for the year 2008

To calculate which input and in what proportions that input needs to be reduced we use the Slacks Table. Slacks are known as the decrease in inputs or increase in output.

Interpretation of this slacks table for 2008:

If a DMU is unable to achieve the efficiency frontier, slacks are required to drive the DMU towards the frontier.

Geojit BNP Paribus is needed to decrease its input in fixed assets by 138973935.860 and the input in salaries, wages, allowances and bonuses by 68973216.588. In spite of these reductions in the inputs the firm will not achieve its efficiency. As none of the inputs can be decreased further the output of cash and bank will be needed to be enhanced by 0.002.

In the similar way, India Infoline will need to decrease or reduce its input in fixed assets and salaries, wages allowances and bonuses by 331986097.106 and 934176470.367 respectively. But despite these reductions the efficiency cannot be achieved and the output has to be augmented by 0.016 to reach the desired efficiency level.

Motilal Oswal will be needed to proportionate its operating expenses and fixed assets inputs by 0.002 and 0.005 and the cash and bank output by 0.037.

Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2008

This target sheet helps in summarising the findings. The target input and output levels are set in this sheet. These targets are obtained by the slack value of the firms being added to their respective outputs. These target values given are equal to the original input and output values of each firm.

Efficiency and Benchmarking Table for Stock Broking Firms for the year 2009

Interpretation of this efficiency and benchmark table for 2009:

Out of five firms the three firms which are efficient are Motilal Oswal, Reliance Capital and Indiabulls as their efficiency score is 1.

Two firms which are inefficient are Geojit BNP Paribus and India Infoline as they have an efficiency score of 0.917 and 0.849 respectively which is less than 1.

Geojit BNP Paribus can increase its efficiency by decreasing its inputs by 8.3% and India Infoline can do the same thing by reducing its by inputs by 15.1%.

The inefficient firms i.e. Geojit BNP Paribus and India Infoline can observe the firms they can take as benchmarks and catch up with them while the efficient firms i.e. Motilal Oswal, Reliance Capital and Indiabulls take themselves to be the benchmark.

On the contrary the benchmark for the inefficient firms is one or more of the efficient firms.

The benchmark for Geojit BNP Paribus will be like Motilal Oswal as its lambda (Æ›) is 0.404.

India Infoline will make an attempt to be more like Motilal Oswal than Reliance Capital due to the lambda value (Æ›) of them being 0.967 and 0.087 respectively.

Slacks Table for Stock Broking Firms for the year 2009

Interpretation of this slacks table for 2009:

Geojit BNP Paribus needs to decrease its fixed assets’ input by 147502979.034, in operating expenses by 86359479.943and in fixed assets by 197900864.296 to be efficient. But even after these reductions the firm will further need to augment its income from operations output by 96651854.796.

Similarly, to reach efficiency India Infoline will need to decrease its inputs in share capital, fixed assets and salaries, wages, allowances & bonuses by 128577749.741, 1465831020.378 and 680734295.513 respectively and also augment the output by 0.131.

Motilal Oswal will need to proportionate its inputs in operating expenses by 0.006 and salaries, wages, allowances & bonuses by 0.00035.

Indiabulls will also need to proportionately allocate its inputs in share capital, operating expenses by 0.006, 0.007 respectively and also its cash and bank output by 0.005.

Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2009

This target sheet summarises the findings. The target input and output levels are provided in this sheet. These targets are achieved by the slack value of the firms being added to their respective outputs. These target values given are equal to the original input and output values of each firm.

Efficiency and Benchmarking Table for Stock Broking Firms for the year 2010

Interpretation of this efficiency and benchmark table for 2010:

All of the six firms are efficient this year as they have an efficiency score of 1.

As all firms are efficient they may consider themselves as their own benchmark.

Slacks Table for Stock Broking Firms for the year 2010

Interpretation of this slacks table for 2010:

Geojit BNP Paribus will need to proportionate its inputs share capital by 0.00088 and salaries, wages, allowances & bonuses by 0.00218 & further increase output of income from operations by 0.00994.

India Infoline will also need to proportionately allocate its inputs in fixed assets and salaries, wages, allowances & bonuses by 0.03281 and 0.03440 respectively and also enhance its output in cash and bank by 0.00231.

Motilal Oswal will also need to proportionate its inputs in salaries, wages, allowances & bonuses by 0.00494 and also enhance its output in income from operations by 0.00562.

Indiabulls will also need to proportionately allocate its inputs in salaries, wages, allowances & bonuses by 0.01049 and also augment its output in income from operations by 0.04578.

Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2010

This target sheet gives a summary of the findings. The target input and output levels are provided in this sheet. These targets are attained when the slack value of the firms being added to their respective outputs. These target values given are equal to the original input and output values of each firm.

Efficiency and Benchmarking Table for Stock Broking Firms for the year 2011

Interpretation of this efficiency and benchmark table for 2011:

Out of five only one firm which is inefficient is Geojit BNP Paribus as its efficiency score is less than 1 i.e. 0.711.

Its efficiency can be increased by decreasing its input by 28.9%.

Geojit BNP Paribus needs to be like Indiabulls as the lambda (Æ›) of Indiabulls is 0.122.

Slacks Table for Stock Broking Firms for the year 2011

Interpretation of this slacks table for 2011:

Geojit BNP Paribus being inefficient needs to reduce its input in share capital, fixed assets & salaries, wages, allowances and bonuses by 86407604.800, 229960491.389 and 171665498.512 respectively. Despite the decrease in the various inputs it will not reach its efficiency. Due to the fact that no more inputs can be reduced the output of income from operations will be needed to be augmented by 183569660.532.

India Infoline will have to proportionately allot inputs of share capital and salaries, wages, allowances and bonuses by 0.003 and 0.035 respectively.

Motilal Oswal will be needed to proportionate its inputs of operating expenses, fixed assets & salaries, wages, allowances and bonuses by 0.03, 0.012 & 0.016 and also augment its output of cash and bank by 0.054.

Indiabulls will also be needed to proportionately allocate the inputs if share capital by 0.004, operating expenses by 0.030 and fixed assets by 0.003.

Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2011

This target sheet summarises this year’s findings. The target input and output levels are prescribed in this sheet. These targets are accomplished when the slack value of the firms being added to their respective outputs. These target values given are equal to the original input and output values of each firm.

Efficiency and Benchmarking Table for Stock Broking Firms for the year 2012

Interpretation of this efficiency and benchmark table for 2012:

Three out of these five firms are efficient.

India Infoline, Motilal Oswal and Indiabulls are considered efficient as their efficiency score comes out to be 1.

Geojit BNP Paribus and Reliance Capital have an efficiency score of 0.318 and 0.815 respectively indicating that these firms are inefficient due to their efficiency score being greater than 0 but less than 1.

These firms improve their efficiency or diminish their inefficiency by decreasing their inputs.

Geojit BNP Paribus can increase its efficiency by decreasing its inputs by 68.2% and India Infoline can do the same thing by reducing its inputs by 18.5%.

The two inefficient firms observe and follow the benchmark firms they need to make up with.

The efficient firms may deem themselves to be the benchmark. On the contrary the benchmark for the inefficient firms may be one or more of the efficient firms.

For Geojit BNP Paribus and Reliance Capital to achieve efficiency they need to employ an amalgamation of India Infoline and Indiabulls.

Geojit BNP Paribus will try to be more like India Infoline more than Indiabulls as the lambda (Æ›) weights of these two firms are 0.009 and 0.062 respectively.

The same case applies to Reliance Capital due to the (Æ›) weights of India Infoline and Indiabulls being 0.204 and 1.829 respectively.

Slacks Table for Stock Broking Firms for the year 2012

Interpretation of this slacks table for 2012:

Geojit BNP Paribus is needed to decrease its input in share capital by 28895351.298 and the input in fixed assets by 34553066.957. In spite of these reductions in the inputs the firm will not achieve its efficiency and because it cannot further reduce its inputs the output of cash and bank will be needed to be augmented by 1195270288.150.

In the similar way, Reliance Capital will need to decrease or reduce its input in share capital, fixed assets & salaries, wages allowances and bonuses by 748089686.012, 492554582.630 and 0.279 respectively. But despite these reductions the efficiency cannot be achieved and the output in cash and bank has to be augmented by 67147939368.504 to reach the desired efficiency level.

India Infoline will be needed to proportionate its fixed assets & salaries, wages allowances and bonuses inputs by 0.084 & 0.080 and the cash and bank output by 0.009.

Motilal Oswal will also be needed to the same thing as India Infoline and proportionate its inputs of share capital and fixed assets by 0.002 and 0.002 respectively. Further it will also need to augment its output in cash and bank by 0.032.

Lastly, Indiabulls will need to proportionately allocate its inputs in share capital by 0.002 and operating expenses by 0.014.

Efficient Targets for Inputs and Outputs Table for Stock Broking Firms for the year 2012

This target sheet helps in summarising the findings. The target input and output levels are set in this sheet. These targets are obtained by the slack value of the firms being added to their respective outputs. These target values given are equal to the original input and output values of each firm.

Chapter 5 – Findings

Findings for Geojit BNP Paribus

This company has been very inconsistent in maintaining the efficiency level.

Despite being efficient in 2010 its efficiency has been low in 2008, 2011 (66.9% and 71.1%) and extremely low (approximately 31.8%) in 2012.

Except for the inputs of operating expenses it needs to manage and proportionate its inputs in share capital, fixed assets & salaries, wages, allowances and bonuses very efficiently and augment its income from operations output to match the standards of other firms.

Findings for India Infoline

This firm had been working slightly inefficiently in 2008 and 2009 with 86.5% and 84.9% efficiency but then has recovered and has been efficient for the last three years i.e. 2010, 2011 and 2012.

It has been more or less consistent with its performance especially in last three years.

It needs to proportionately allocate its input in fixed assets & salaries, wages, allowances and bonuses in order maintain its efficiency effectively.

Findings for Motilal Oswal

The performance of the firm has been high-quality and it has sustained its efficiency throughout the last five years taken into account for this study.

It needs to carry on the strategy adopted for the proportionate allocation of its input and management of its output.

Findings for Reliance Capital

The firm has been steady in retaining its efficiency but has lost out a bit in the last year i.e. 2012.

The dip in its performance is majorly due to improper allocation & management of share capital, fixed assets inputs also owing to improper augmentation of the cash and bank output of the firm.

Findings for Indiabulls

The firm’s efficiency has been superior to the other firms except for Motilal Oswal which has been as consistent as Indiabulls.

It is required to keep following the approach and tactic adopted in order to remain at the top.

Chapter 6 – Limitations

The result of this research work cannot be generalised.

The conclusion or outcome of this study and the models used for the prediction are viable only with the variables considered in this model.

Emphasis or consideration has not been given to the external factors affecting the performance and efficiency of the stock broking firms selected for the research purpose.

Lack of knowledge of the strategies adopted by the respective stock broking firms to administer their efficiency and performance.

Non-availability of sufficient literature on the topic of this report.

Chapter 7 – Conclusions

In this study the tool used is Data Envelopment Analysis (DEA) to investigate the efficiency of the major stock broking firms from 2008-2012 operating in the Indian market. The DEA technique is a unique technique for efficiency measurement and benchmarking as it helps in generating new methods and substitutes to enhance performances in comparison to other tools and techniques used for similar purposes.

Out of the five firms selected for this study, two firms i.e. Motilal Oswal and Indiabulls have been consistent in their performance and sustained their efficiency. Out of the other three firms Reliance Capital has just as slight dip in its performance in the last year of study whereas India Infoline after an average performance and efficiency has risen to match the standards and efficiency levels set by the most efficient firms. But the fifth firm i.e. Geojit BNP Paribus needs to perform extraordinarily well to overcome the inefficiencies.

In this study apart from the inputs chosen for the performance evaluation of the firms other inputs can also be considered and in the same way various outputs can also be taken.

Nevertheless, the major limitation of the study is that this study does not analyse and provide us with the absolute efficiency of the stock broking firms. The stock broking firms which have been analysed as efficient are only best firms in contrast to the other stock broking firms taken into consideration on this study. This means that if new stock broking firms are considered or included in the study then the efficient firms may become inefficient.