Brokerages' valuations rise

With several global brokerages bullish on the Indian retail broking space and the stock market trading at record levels, the valuations of Indian retail brokerages have risen.

Shares of almost all the listed broking outfits, including Indiabulls Financial Services, IL&FS Investsmart, India Infoline, Geojit Financial Services, Emkay Stock & Shares, Prime Securities and JRG Securities, are riding high on the back of premium valuations by Wall Street brokerages such as Citigroup.

Morgan Stanley, JP Morgan, Citigroup, Merill Lynch, BNP Paribas, UBS, StanChart, ABN Amro are among the clutch of foreign brokerages which are eyeing the largely untapped and growing cash-rich Indian middle-class, estimated to grow 10-fold over the next 25 years to nearly 600 million.

India Infoline, which gained by a hefty 91. 6 per cent since January, is the fastest riser among all the listed brokerages.

At Rs 597.90 a share, India Infoline counter has surged by 33.70 per cent after it announced last month that four top officials from the foreign brokerage CLSA had joined the company.

Says Harshad Apte, vice president, India Infoline, "If you look 3-4 years back, brokers and the broking business were severely despised, but suddenly brokerages have become the flavour of the season."

Indiabulls Financial Services shares have also appreciated by around 100 per cent over the last one-year period, following the unlocking of value through the demerger of the real-estate business.

Recent months have seen several high-profile stake sales in the Indian retail broking space, including E*Trade taking controlling stake in IL&FS Investsmart, France's BNP Paribas buying into Geojit Financial Services, Stanchart taking stake in the unlisted UTI Securities and Citigroup Venture Capital buying into retail brokerages Sharekhan and AnandRathi.

Buoyed by the opportunity, several domestic brokerages, including the likes of Motilal Oswal, Edelweiss Securities, Angel Broking, among others, are planning to raise resources through initial public offerings (IPOs).

Says Vijay L Bhambwani, CEO of BSPLindia.com, "As long as the market shows bullishness, people will continue to invest in these stocks. Moreover, there are not many listed brokerages, so there is more money chasing only a few stocks."

"Only 1.48 per cent of the household savings was parked in equities, so there is a lot of untapped potential out there," analysts added.