Global majors eye brokerage firms

Domestic retail stock broking houses are in the midst of a transition from a laid-back culture to a professional-driven business, as global financial majors with deep pockets are queuing up to get a piece of the high-potential Indian retail brokerage business.

After the recent M&As, which saw BNP Paribas, BankMuscat and E*Trade entering the Indian retail broking business, the next big deal could happen in Sharekhan, the retail broking arm of the Mumbai-based SSKI Group.

Besides, a major announcement is expected from UTI Securities, currently owned by Securities Trading Corporation of India (STCI).

Morakhias, the promoters of SSKI, are planning to exit the financial services business and are looking for a buyer. They currently hold 37 per cent in Sharekhan, while the employees hold 15 per cent.

The remaining stakes are held by General Atlantic, Intel Capital and a group of funds advised by HSBC Equity India. According to market players, Sharekhan valued at around Rs 800-850 crore. It is among the top five retail brokerage outfits in the country, with over 100 branches across 150 cities.

Around 19 players including Citigroup,TPG,Newsbridge and Baring have placed there bids. Nimesh Kampani's JM Financial, which had earlier expressed its interest in Sharekhan, has opted out saying the valuation of Sharekhan was too high for its comfort.

STCI has put on block 49 per cent stake in UTI Securities, another retail broking-cum investment banking firm. International majors including Standard Chartered Bank, Kuwait-based Global Investment House and Australia's Macquarie Bank are leading the race for the 49 per cent stake in UTI Securities, according to sources close to the development.

Mumbai-based retail brokerage, Angel Broking is also planning to offer 25 per cent of its equity to private equity funds to raise Rs 250 crore for meeting its expansion requirements.

Market players are expecting a consolidation in the broking business. However they feel the small brokers will have to find their niche, which could probably be through the relationship business.

They also feel that organised brokers could cater to the needs of a new class of investors who are more demanding for research, information and advice.

"Some amount of consolidation is going to take place in the industry. We will be clearly seeing concentration moving towards the top-end of the market. There will be elements of differentiation, with different products being offered to different category of customers. There will also be price pressure," said Sandeep Presswala, CEO, IL&FS Investsmart, where E*Trade, the fourth largest online broking firm, took a controlling stake last year.

"Unless the small players find a niche for themselves, they may find it hard to survive. They would have to tie up with the major players," he added.

Last year in May, ABN AMRO became the first international bank to foray into the retail brokerage space in India through the organic route. Subsequently, the French banking major BNP Paribas acquired a 33 per cent stake in the Kochi-based Geojit Financial Services.

"Rather than setting up their own network in India, it is more feasible for them to pick up a stake in the already established players in India. By picking up a stake in a domestic retail broking house, the foreign player can take advantage of the existing opportunites. It is also an easy and early entry for them, although they may have to pay a premium for it." said Reji Jacob of JRG Securities.

Echoing the same views, Rajiv Phadke, ED (business development), Angel Broking said, "It's a good development that's taking place for the players as well as for the investors. They would get better products of international standards, more offerings in the same pricing and there will also be an improvement in the service standards. The broking business has moved from transaction-based relationship to advice-based relationship, as the investors now expect their brokers to advice them."

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TAKING STOCK

Morakhias, the promoters of SSKI, are planning to exit the financial services business

STCI has put on block 49 per cent stake in UTI Securities

Angel Broking is planning to offer 25 per cent of its equity to private equity funds