Investors, brokers drive in different lanes on Dalal Street

Stock market brokers advice and execute trades for their investor clients, but they seem to be following different yardsticks when trading for themselves if the pattern of buying and selling shares is any indication.

When a brokerage firm trades in stocks with its own money for making a profit for itself, it is done through proprietary accounts, while trading with investors' money for the customers' profit or loss is recorded in the client account.

While the stock market has recorded a net outflow from the client accounts during all the months this year except for January, proprietary accounts have been net buyers during five months so far, according to an analysis of turnover figures at Bombay Stock Exchange.

Since the beginning of this year when the BSE Sensex has moved higher by close to 1,400 points, client accounts have recorded a net sales of shares worth about Rs 8,300 crore. In comparison, proprietary accounts have seen a net purchase of Rs 665 crore on the BSE.

Market observers believe the latest trend indicates toward investors seeking out early profit booking from the booming market, while brokers seem to be partly holding into the market in anticipation for bigger gains.

Since January 2006, there have been just five months out of a total of 19 months when both client and proprietary accounts have witnessed similar pattern.

In 2006, when Sensex gained more than 4,000 points, client accounts were net sellers for nine months, as against just one month of net sales from proprietary accounts.

Interestingly, when the Sensex tanked 542 points on Friday to record its biggest fall since April 2, client accounts recorded a net purchase of shares worth Rs 259 crore, even as the brokers were seen cashing out in their proprietary accounts with a net sale of shares worth about Rs 100 crore.

Earlier in May last year, when the market saw one of its biggest plunge in the recent past with a fall of close to 1,600 points in the Sensex, client accounts were again net buyers for shares worth about Rs 280 crore, while proprietary accounts sold shares worth a net of Rs 344 crore.

So far in July, client accounts have sold shares worth a net Rs 2,676 crore -- the biggest ever for a single month since January 2006. Proprietary accounts, on the other hand, have been net buyers of shares worth about Rs 88 crore, which is broadly in-line with their monthly average.

In total, shares worth about Rs 3,85,855 crore have been purchased by brokers on behalf of their clients, while they have bought shares worth about Rs 1,27,729 crore from their own capital in 2007 so far. Besides, shares worth about Rs 1,26,352 crore have been sold through proprietary accounts, as against sale of shares worth Rs 3,94,160 crore for clients.

Earlier in 2006, the BSE saw a net purchase of shares worth about Rs 1,240 crore in proprietary accounts, as against a net sale of about Rs 9,840 crore in the client accounts.