Ashish Rukhaiyar & Reena Zachariah
MUMBAI
Dec 30, 2008
ASIA’S oldest exchange, Bombay Stock Exchange (BSE), now has two foreign nominees on its board. According to people familiar with the development, BSE has inducted Singapore Exchange (SGX) chief financial officer Seck Wai Kwong and Eurex chief executive Andreas Preuss on its board. Eurex is jointly operated by Deutsche Borse AG and SIX Swiss Exchange.
SGX and Deutsche Borse AG hold 5% each in BSE. The development was confirmed to ET by one of the BSE board members. According to this member, “two new members have been inducted on the board of the exchange recently as shareholder directors from Singapore Stock Exchange and Deutsche Bvrse.”
However, a BSE spokesperson said only Mr Kwong of SGX has been inducted on the board. “Seck Wai Kwong has come on board on November 8, 2008, and the process of inducting a nominee of Deutsche Bvrse is on at present,” said an official in response to an email query. The BSE website, however, has no mention of the appointment of Mr Kwong. To this the spokesperson responded: “Our website is being updated.”
SGX and Deutsche Borse are the only two foreign exchanges to hold stakes of 5% each in BSE. The earlier demutualisation norms allowed foreign entities to hold a maximum of 5% in any Indian exchange. The latest amendments have hiked this limit to 15% although none of the foreign shareholders have, till date, increased their holdings beyond 5%.
While BSE has only recently inducted representatives of foreign shareholders on its board, the National Stock Exchange (NSE) did it in 2007 when NYSE Euronext got its nominee on the board of India’s largest stock exchange. NSE’s foreign shareholders include Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund, among others.
On a different note, the BSE board is slated to meet on January 10, 2009, and there would be “at least some discussions related to the new chief executive,” of the exchange. It is more than four months since Rajnikant Patel resigned as managing director and CEO of the exchange.
Wednesday, 31 December 2008
Fence sitters take baby steps to D-Street
Broking Firms Report Rise In New Active Demat
Accounts As Investors See Merit In Selective Buying
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Dec 22, 2008
THE recent rise in benchmark indices seems to have attracted many new investors who had been sitting on the sidelines for quite some time. Leading brokerages like ICICI Direct, Reliance Money, Angel and Sharekhan have registered a rise in the number of new active demat accounts in November and are optimistic about the near future, too. Broking firms attribute this trend to the growing number of investors who feel that the market may have bottomed out and the time has come for selective buying.
Broking firms define fresh active demat accounts as those where the client starts trading immediately after opening the account. In the past few months, while fresh demat accounts were being opened, most remained dormant before registering the maiden transaction.
ICICI Direct, which has one of the highest numbers of demat accounts in the country, witnessed 30% of fresh accounts getting activated in November. This is a substantial jump from July, when activation was only 18%. Activation refers to the trading activity after opening the demat account. A higher activation rate signifies that investors are not only opening demat accounts but also trading in an active manner. ICICI Direct hopes activation rate to be around 40% in December.
Reliance Money (R-Money), which boasts of 2.5-million account holders, has also been witnessing a rise in the number of accounts being opened after the government announced a fiscal stimulus package.
“New account opening is picking up gradually,” said R-Money CEO Sudip Bandyopadhyay. He added while earlier around three lakhs R-Money account holders were active traders, the number has now gone up to four lakhs.
According to Mr Bandyopadhyay, the increase in retail investor participation can be attributed to the recently announced stimulus package and rate cuts by the Reserve Bank of India (RBI). “Investor confidence is improving steadily; now that we’re moving away from economic deterrents like high inflationary pressures and high interest scenario, we expect the positive trend to continue for some time,” he said.
The Sensex has gained around 20% in the past one month, rising from 8,451 point to 10,100 points. The average number of shares being traded daily has also gone up by a little over 19% that clearly signals an increase in investor participation.
According to a Sharekhan spokesperson, the broking firm has registered a 20% rise in the number of active accounts in the past few days. “Fresh account opening is also gathering steam; we’re opening about 15,000 fresh accounts every month,” said the official.
Similarly, Angel Broking executive director (equities broking) Vinay Agrawal said: “While earlier “only 7% of investors took to daily activation, this has improved to 10% in the past few days.”
Accounts As Investors See Merit In Selective Buying
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Dec 22, 2008
THE recent rise in benchmark indices seems to have attracted many new investors who had been sitting on the sidelines for quite some time. Leading brokerages like ICICI Direct, Reliance Money, Angel and Sharekhan have registered a rise in the number of new active demat accounts in November and are optimistic about the near future, too. Broking firms attribute this trend to the growing number of investors who feel that the market may have bottomed out and the time has come for selective buying.
Broking firms define fresh active demat accounts as those where the client starts trading immediately after opening the account. In the past few months, while fresh demat accounts were being opened, most remained dormant before registering the maiden transaction.
ICICI Direct, which has one of the highest numbers of demat accounts in the country, witnessed 30% of fresh accounts getting activated in November. This is a substantial jump from July, when activation was only 18%. Activation refers to the trading activity after opening the demat account. A higher activation rate signifies that investors are not only opening demat accounts but also trading in an active manner. ICICI Direct hopes activation rate to be around 40% in December.
Reliance Money (R-Money), which boasts of 2.5-million account holders, has also been witnessing a rise in the number of accounts being opened after the government announced a fiscal stimulus package.
“New account opening is picking up gradually,” said R-Money CEO Sudip Bandyopadhyay. He added while earlier around three lakhs R-Money account holders were active traders, the number has now gone up to four lakhs.
According to Mr Bandyopadhyay, the increase in retail investor participation can be attributed to the recently announced stimulus package and rate cuts by the Reserve Bank of India (RBI). “Investor confidence is improving steadily; now that we’re moving away from economic deterrents like high inflationary pressures and high interest scenario, we expect the positive trend to continue for some time,” he said.
The Sensex has gained around 20% in the past one month, rising from 8,451 point to 10,100 points. The average number of shares being traded daily has also gone up by a little over 19% that clearly signals an increase in investor participation.
According to a Sharekhan spokesperson, the broking firm has registered a 20% rise in the number of active accounts in the past few days. “Fresh account opening is also gathering steam; we’re opening about 15,000 fresh accounts every month,” said the official.
Similarly, Angel Broking executive director (equities broking) Vinay Agrawal said: “While earlier “only 7% of investors took to daily activation, this has improved to 10% in the past few days.”
Corp governance rating to get a boost
Raters Hope More Companies Will Opt For
Governance Ratings After Satyam Fiasco
Ashish Rukhaiyar
MUMBAI
Dec 19, 2008
CREDIT rating agencies have sensed a business opportunity, following the Satyam fiasco. Chances are they would get more clients for ‘corporate governance rating’ — a service that agencies had launched some years ago, but have so far interested only in a few companies.
ICRA launched its corporate governance rating (CGR) around five years ago, while Crisil came out with a similar product a little before that. Till date, however, only a handful of Indian companies have opted for corporate governance rating, which takes into account equitable treatment of shareholders, transparency & disclosure, composition & functioning of board, procedures laid down for making corporate decisions, among other factors.
Crisil senior director (ratings) Raman Oberoi said that while they have rated “quite a few” companies in the past, only “10 entities have made it public.” “Companies like Bharti Airtel, HDFC Bank, Infosys, Hero Honda and M&M are some of the companies that have got themselves rated and also come for annual review,” said Mr Oberoi.
While Crisil officials refused to divulge the costs involved in such ratings, Icra vicechairman & group CEO PK Choudhury said: “It is in the range of Rs 5 lakh to Rs 7.50 lakh,” depending on the “size and complexity”. Icra, incidentally, has rated 14 entities, including Andhra Bank, 3i Infotech, Infosys, Godrej Consumer Products and Punjab National Bank.
Rating agencies have tried their best to market the product by making presentations to various industry bodies and also to the regulatory authorities. “We have kept the regulators informed of what we do while organising seminars with Chambers of Commerce, etc, to create awareness for this range of services,” said Mr Choudhury.
Interestingly, even while rating agencies may advocate the importance of such ratings, there are many who feel that corporate governance is about ethics and cannot be forced by checkbox exercise. “Ethics cannot be graded and so should not be mandated by law,” said Prime Database managing director Prithvi Haldea.
“Next to every agenda item, board members should start the practice of writing its implications on the minority and majority shareholders. It would go a long way in enhancing corporate governance,” said Mr Haldea who feels that companies like Satyam would anyway get the highest rating if it opts for one.
TRIGGER POINT
* Only a few companies have opted for corporate governance so far
* While cos advocate for importance of ratings, many feel corp governance is about ethics and can’t be graded
* Rating cos try to market this product by making presentation to various industry bodies
Governance Ratings After Satyam Fiasco
Ashish Rukhaiyar
MUMBAI
Dec 19, 2008
CREDIT rating agencies have sensed a business opportunity, following the Satyam fiasco. Chances are they would get more clients for ‘corporate governance rating’ — a service that agencies had launched some years ago, but have so far interested only in a few companies.
ICRA launched its corporate governance rating (CGR) around five years ago, while Crisil came out with a similar product a little before that. Till date, however, only a handful of Indian companies have opted for corporate governance rating, which takes into account equitable treatment of shareholders, transparency & disclosure, composition & functioning of board, procedures laid down for making corporate decisions, among other factors.
Crisil senior director (ratings) Raman Oberoi said that while they have rated “quite a few” companies in the past, only “10 entities have made it public.” “Companies like Bharti Airtel, HDFC Bank, Infosys, Hero Honda and M&M are some of the companies that have got themselves rated and also come for annual review,” said Mr Oberoi.
While Crisil officials refused to divulge the costs involved in such ratings, Icra vicechairman & group CEO PK Choudhury said: “It is in the range of Rs 5 lakh to Rs 7.50 lakh,” depending on the “size and complexity”. Icra, incidentally, has rated 14 entities, including Andhra Bank, 3i Infotech, Infosys, Godrej Consumer Products and Punjab National Bank.
Rating agencies have tried their best to market the product by making presentations to various industry bodies and also to the regulatory authorities. “We have kept the regulators informed of what we do while organising seminars with Chambers of Commerce, etc, to create awareness for this range of services,” said Mr Choudhury.
Interestingly, even while rating agencies may advocate the importance of such ratings, there are many who feel that corporate governance is about ethics and cannot be forced by checkbox exercise. “Ethics cannot be graded and so should not be mandated by law,” said Prime Database managing director Prithvi Haldea.
“Next to every agenda item, board members should start the practice of writing its implications on the minority and majority shareholders. It would go a long way in enhancing corporate governance,” said Mr Haldea who feels that companies like Satyam would anyway get the highest rating if it opts for one.
TRIGGER POINT
* Only a few companies have opted for corporate governance so far
* While cos advocate for importance of ratings, many feel corp governance is about ethics and can’t be graded
* Rating cos try to market this product by making presentation to various industry bodies
Difficult to wriggle out of legal tangle
Shareholders Can Take Co To Court Even Now
Jessica Mehroin Irani & Ashish Rukhaiyar
MUMBAI
Dec 18, 2008
SHAREHOLDERS of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas Properties and Maytas Infrastructures, according to legal experts.
Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action. “The unfavourable impact of the deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal has been called off,” says Mr Narayanan.
The Satyam stock lost more than 30%, or Rs 68.45, on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.” Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mismanagement as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.
It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid-up capital and free reserves or 100% of its free reserve, whichever is more.
“Around 60% of the company’s paidup capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.
According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.
Jessica Mehroin Irani & Ashish Rukhaiyar
MUMBAI
Dec 18, 2008
SHAREHOLDERS of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas Properties and Maytas Infrastructures, according to legal experts.
Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action. “The unfavourable impact of the deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal has been called off,” says Mr Narayanan.
The Satyam stock lost more than 30%, or Rs 68.45, on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.” Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mismanagement as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.
It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid-up capital and free reserves or 100% of its free reserve, whichever is more.
“Around 60% of the company’s paidup capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.
According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.
Wary hedge funds hold on to cash in uncertain times
Hopes Of Market Revival May Be Belied As Traditional
Fresh Allocations In Jan May Not Come Through
Ashish Rukhaiyar
MUMBAI
Dec 12, 2008
VISHAL Mehta (name changed) does a lot of stock transactions for hedge funds based out of Singapore and Hong Kong. His job requires him to shuttle frequently between his Mumbai office and the twin Southeast Asian financial centres.
Earlier, every visit of his to Singi (the market lingo for Singapore) and HK would bring at least three or four orders that would help cover the cost of the trip apart from getting him an impressive incentive. Things, however, have now taken a u-turn, with Mr Mehta returning empty-handed from most of his recent trips overseas.
“I was surprised to see most of my regular clients sitting on cash and refusing to invest it,” says Mr Mehta while declining to name the “hedgees” due to confidentiality agreements. “Obviously, most of them have been hit by massive redemption pressures, but even those that have cash are not ready to deploy it. I even met a fund manager who had 90% cash on his books,” he adds. “I don’t think there would be any ‘January Effect’ this time.”
This spells bad news for those who were hoping for an early revival in the domestic stock market. While December is traditionally a lean period as many institutional investors sell shares to offset capital gains (thereby saving on tax), January is usually seen as a revival month as foreign investors start allocating money to specific markets. This is also sometimes referred to as the ‘January Effect’.
India Investment Advisors LLC co-founder and managing director Robin Rodriguez, who manages the India Deep Value Fund, feels, “Actions of a very large percentage of India-focused hedge funds are being driven by investor withdrawals as opposed to a conscious trading decisions”.
“The biggest selling bouts that occurred in my lifetime (1972-1974 and 1989-1991) didn’t really abate until new liquid players recognised the extent to which the decline had been overdone on the downside and started trying to exploit the opportunities,” he explains.
In a similar context, a managing director of an investment advisory firm says that there are hardly any funds with an appetite for Indian stocks. “Everyone knows that problems in the developed market are far from over. While most funds are sitting on at least 25% cash, none of them have the confidence to deploy that money in the current scenario.”
Interestingly, there are many on the street who feel that even if there are fresh allocations, India would not gain much since some of the other Asian markets, including China, appear much more attractive. The Shanghai Composite, China’s benchmark index, has lost over 60% in the current calendar year, much more than India’s Sensex, which is down by 52% during the same corresponding period.
Mr Rodriguez, however, finds it hard to conclude that China is cheaper than India given the opaque regulatory regime and a lack of accounting controls. “The inadequate accounting controls in most Chinese companies and the lack of a legal system that facilitates enforcement of contract rights implies (Chinese stocks) should be cheaper to account for the country risk.”
Fresh Allocations In Jan May Not Come Through
Ashish Rukhaiyar
MUMBAI
Dec 12, 2008
VISHAL Mehta (name changed) does a lot of stock transactions for hedge funds based out of Singapore and Hong Kong. His job requires him to shuttle frequently between his Mumbai office and the twin Southeast Asian financial centres.
Earlier, every visit of his to Singi (the market lingo for Singapore) and HK would bring at least three or four orders that would help cover the cost of the trip apart from getting him an impressive incentive. Things, however, have now taken a u-turn, with Mr Mehta returning empty-handed from most of his recent trips overseas.
“I was surprised to see most of my regular clients sitting on cash and refusing to invest it,” says Mr Mehta while declining to name the “hedgees” due to confidentiality agreements. “Obviously, most of them have been hit by massive redemption pressures, but even those that have cash are not ready to deploy it. I even met a fund manager who had 90% cash on his books,” he adds. “I don’t think there would be any ‘January Effect’ this time.”
This spells bad news for those who were hoping for an early revival in the domestic stock market. While December is traditionally a lean period as many institutional investors sell shares to offset capital gains (thereby saving on tax), January is usually seen as a revival month as foreign investors start allocating money to specific markets. This is also sometimes referred to as the ‘January Effect’.
India Investment Advisors LLC co-founder and managing director Robin Rodriguez, who manages the India Deep Value Fund, feels, “Actions of a very large percentage of India-focused hedge funds are being driven by investor withdrawals as opposed to a conscious trading decisions”.
“The biggest selling bouts that occurred in my lifetime (1972-1974 and 1989-1991) didn’t really abate until new liquid players recognised the extent to which the decline had been overdone on the downside and started trying to exploit the opportunities,” he explains.
In a similar context, a managing director of an investment advisory firm says that there are hardly any funds with an appetite for Indian stocks. “Everyone knows that problems in the developed market are far from over. While most funds are sitting on at least 25% cash, none of them have the confidence to deploy that money in the current scenario.”
Interestingly, there are many on the street who feel that even if there are fresh allocations, India would not gain much since some of the other Asian markets, including China, appear much more attractive. The Shanghai Composite, China’s benchmark index, has lost over 60% in the current calendar year, much more than India’s Sensex, which is down by 52% during the same corresponding period.
Mr Rodriguez, however, finds it hard to conclude that China is cheaper than India given the opaque regulatory regime and a lack of accounting controls. “The inadequate accounting controls in most Chinese companies and the lack of a legal system that facilitates enforcement of contract rights implies (Chinese stocks) should be cheaper to account for the country risk.”
BSE cuts penalty on KGN Ind
Ashish Rukhaiyar
MUMBAI
Dec 03, 2008
THE Bombay Stock Exchange has revised its earlier order pertaining to KGN Industries, wherein it had penalised more than 200 brokers for their alleged role in manipulating the share price on the relisting day.
According to people familiar with the development, the exchange has more than halved the penalty amount for most broking houses that were named in the earlier order in June 2008. The development follows representations made by these brokers with some even knocking the doors of the Securities Appellate Tribunal (SAT).
The case goes back to June 2008 when BSE slapped a fine of up to Rs 5 lakh on 222 brokers for allegedly manipulating the stock price of KGN Industries on the day of its relisting on May 21. The stock opened at Rs 72 and went on to hit an incredible price of Rs 55,000 within two hours.
BSE suspended trading in the stock around 12.20 pm when it fell back to Rs 15,000. Later on that day, BSE issued a release saying: “Further investigations will be carried out, but trading in the stock will resume on Thursday at the adjusted price of Rs 5,216.30.”
The exchange, in its new order announced a few days ago, has tried to penalise only those entities that punched in orders but failed to take actual delivery of the stock. Brokers, however, are still unhappy as most of them did not get delivery due to genuine reasons and still have to pay penalty.
"Only 827 shares were traded on May 21 and so most brokers did not get delivery," said a compliance officer of a brokerage whose penalty was reduced to Rs 1.25 lakh from the earlier Rs 5 lakh. "So still many brokers who had no malicious intent have to pay penalty albeit of a lower value," he added.
Around 4-5 aggrieved brokerages, including Asit C Mehta, Networth Stock Broking and SBICAP Securities, had moved the Securities Appellate Tribunal (SAT), challenging the exchange’s order. SAT apparently asked BSE to explain the rationale of its order. Meanwhile, a mail sent to the exchange asking for details related to the revised order remained unanswered till the time of going to press.
BSE, in its earlier order, observed that some of the trading members entered orders at unrealistic prices, disturbing the market equilibrium. "In view of the same, it has been decided to impose a fine up to Rs 5 lakh on such trading members," said the exchange.
The trading members who were named in the order included Angel Broking, Brics Securities, Centrum, Dawnay Day, Emkay, Geojit, India Infoline, Religare, Sharekhan and Anand Rathi among others.
Brokers try alternate source of revenue
Ashish Rukhaiyar
MUMBAI
Nov 25, 2008
THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.
Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.
Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.
India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.
Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.
Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.
Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.
Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.
MUMBAI
Nov 25, 2008
THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.
Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.
Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.
India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.
Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.
Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.
Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.
Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.
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