'Reliance won't change the dynamics of broking'

SMART TALK: Nirmal Jain

Nirmal Jain

India Infoline has posted good numbers for the June quarter. The company's revenues have increased 316 per cent y-o-y to Rs 18.10 crore. Net profit surged 346 per cent to Rs 11.71 crore. The performance can be attributed to the upbeat mood of the market till mid-May.

But Nirmal Jain, chairman and managing director, points out that the company is well prepared to deal with market swings due to a diversified revenue model that cushions earnings. India Infoline is in a expansion mode and proposes to add 150 branches to its existing base of 233. In addition, the company is also improving its product offerings apart from adding new ones to its kitty. Business Standard chatted up with Jain to know more. Excerpts:

About 65 per cent of your income comes from equity broking, which makes the company vulnerable to the ups and downs in the market. How do you plan to address this?

We derive our revenues from various segments like equity and commodity broking, distribution of insurance, mutual funds and debt instruments, PMS (portfolio management services) and investment banking services. Equity broking does form the largest share of our revenues but our goal is to lower our dependence to 40-45 per cent in the next three years.

We wish to achieve this by giving a push to our insurance and commodity business where we see tremendous growth opportunity. Currently, we distribute only life insurance products. We want to get into the general insurance space too. We would also be taking initiatives to increase income from distribution of mutual fund products.

Would the present volatility impact your earnings?

It would be too ambitious to say that we would be totally unaffected by the volatility in the markets. But given the fact that our revenue streams are well diversified resulting in a high degree of derisking, we would not get affected much by the volatility in the markets. How do you propose to increase your market share given the heightened competition in the business?'

We have our own strengths that nobody can replicate. Today, our transaction costs are the lowest in the industry. Charging lower than this is difficult for competition. Around 85 per cent of our equity broking income comes from online broking where technology is the key.

We are investing significantly to upgrade our technology. We were among the first in the field of online broking when we commenced our services in 2001. Now we are suitably placed as one of the bigger players in the online broking market and are looking to increase our market share.

Innovation has been the cornerstone of our business and has been the defining element which has led to our growth. Going ahead too we believe that innovation will be the one factor which will drive our market share. We are constantly thinking of ways to value add our product.

The 'Lifetime prepaid broking and depository account' was one such initiative which was received well. The retail investor populace lapped it up eagerly since for the first time they could trade without having to worry about the monthly or yearly or other similar fixed charges. They could now trade whenever they wanted to, in quantities they desired, and pay only for their trades.

Will revenues improve significantly from the recently launched mobile-based trading?

We believe in offering multiple front-end options to provide convenience to our clients. Launching this service is a step in this regard. The prototype is ready and we are awaiting regulatory approvals.

The charges for the service would be the same as any other platform. Trends favour this medium. Retail interest in the stock markets is on the rise, and we have one of the fastest growing cellular markets in the world, and just about anyone with a mobile phone will have access to trading.

What kind of opportunities do you see in the investment banking business?

In the investment banking business, we are focussing on the Small and Medium Enterprises (SME) segment. We anticipate that in the future a huge number of SMEs will be accessing the capital markets to fuel their ambitions, domestic as well as global.

With an established network of branches across the country coupled with relationships which we have nurtured in this segment over the years due to our research coverage, we believe we hold an edge over others.

While large enterprises have established merchant bankers to go to, SMEs would not be able to get a decent hearing and high service levels. This is where we fit in.

Today, brokers are launching differentiated schemes to appeal to and attract customers. What are your plans?

At present we differentiate customers as only traders and investors. We charge 0.05 per cent for traders and 0.25 per cent for delivery-based transactions. We believe in keeping our products simple and easy to understand. We have no such plans in the near future. How do you see Reliance's entry into the business?

Entry of bigger players is always good. They help in the expansion of the market. We believe that the arrival of Reliance Capital will not change the dynamics of broking significantly.

To give you an example, when we launched our 5 paise scheme (0.05 per cent brokerage), other brokers were charging one per cent but this did not drive businesses out of the market. Do you see some consolidation happening?

There will definitely be some consolidation in the financial services space due to the sheer number of players who have jumped in sensing the opportunity.

The primary drivers of this consolidation will be increasing regulatory requirements, dependence on capital-intensive technology and rising demand for research which is not readily available off-the-shelf but has to be cultivated. We are open to looking at acquiring other players provided there is a culture fit, it makes a strong business case and the price is right.

How do you see the equity and commodity markets going ahead and what does it mean for you?

The equity market is in a long-term structural bull phase and we are well set to ride it. While we understand and appreciate that there would be intermittent dips and highs, the long-term picture is still very picturesque.

With ongoing expansion, geographically as well as in the number of products, we should shield ourselves from the volatility to a greater extent.

While we are looking at progressively reducing the contribution from equity broking to our topline to around 45 per cent levels, in absolute terms this business would see huge growth.

People are currently wary of investing in equities because of the risky and speculative image attached to it today. To shed this image, the industry does need advisors. A mere 1.6 per cent of retail assets are in equities today. Even if this number becomes 10 per cent, it would mean that the market has grown six times.

Commodity markets are still in the nascent stage and have yet to really take-off. Our commodities broking business is still in the investment and roll-out stage and we believe we will see good amount of traction in this going ahead.

We will be waiting and ready to reap the benefits of this growth when it happens which we believe is not too far away and the current year itself should see growing interest in the commodity markets.

Can you elaborate on your future plans?

Thus far, our focus has been on the investment side of the customer's balance sheet. We have also recently entered the loans business where we are direct selling agents for a number of leading mortgage and other loan providers. We are bullish on this business and are looking to roll this out across our network.

Also our PMS has taken off well and we believe that for the segment that we target, i.e. the mass affluent segment, there is a huge untapped market. Of course, our life insurance business has been more than tripling every year since inception and we see no reason why this pace of growth can't be improved, at worst maintained; albeit on a far bigger base.