Brokerages look at a dose of cash, equity

Indiabulls IPO sends market buzzing.

After Indiabulls, a host of brokerages is set to hit the money trail. The reason: after a good year for the broking business, many brokers feel this is the right time to expand and that calls for investment. So brokerages are looking at not just initial public offers (IPOs) but also several other funding options, including private equity.

Among the brokerage houses that are said to be planning to raise funds for expansion are IL&FS Investsmart, SSKI Securities and Karvy Stock Broking, though not all of them were willing to confirm this.

Amitabh Chakraborty, head of research at Kotak Securities, says: "Most of these brokerages have a predominantly retail focus. And having attained a certain size, they now want to scale up."

The firms require funds to set up branches, franchisee outfits, invest in technology, manpower, sales agents, relationship managers and so on. There is also a growing trend among brokerages to offer portfolio management schemes to high net worth individuals.

Hemang Raja, managing director of Investsmart, has already said on record that the brokerage outfit is waiting for a strategic investor before it goes to the public for additional funding.

Jaideep Arora, director at Sharekhan (the online trading brand of research broker SSKI), said an IPO was not among the immediate priorities of the company, but added: "Nothing can be ruled out."

He said that the company was open to all opportunities in order to give investors a better deal. It was thus also open to infusion of fresh money either through a financial investor or by going to the public. "In order to upgrade our existing infrastructure and equip ourselves with the right technology we need to have access to funds," he said.

SSKI has around 80,000 broking clients while another 65,000 use its depository account facilities. Around a third of its customers trade online.

Ambareesh Baliga, vice-president, Karvy Stock Broking, also said that there were no immediate plans for an IPO, but the company was open to taking in a strategic investor through private equity. He said that an IPO would make sense only if the valuations were right.

Chakraborty of Kotak believes that if the market remains in the current buoyant phase and Indiabulls lists at a decent premium to the offer price, other brokerages may also decide to take the plunge.

Brokers have hitherto been a very closed community with the public at large having little or no stake in this business, except as customers. While most of the traditional brokers were unwilling to open themselves to public scrutiny --- which is what an IPO would involve --- the others seemed keen to tap the public purse to expand both within India as well as abroad, London and Singapore being the key overseas destinations.

Float boom

• Among the brokerage houses said to be planning to raise funds for expansion are IL&FS Investsmart, SSKI Securities and Karvy Stock Broking
  
• Brokerages are looking at not just initial public offers but also several other funding options, including private equity
  
• Brokerages have a predominantly retail focus and after attaining a certain size, they want to scale up, say analysts