Mumbai: JM Financial Ltd, Morgan Stanley’s former partner in India, may buy a local brokerage to rebuild the equity sales and research teams it sold to the New York investment bank, director Vishal Kampani said.
“We will look at acquisitions in the broking space,” Kampani, 30, said in an interview in Mumbai. “You need research capability to generate new ideas for domestic funds, ideas for hedge funds, ideas for institutional clients.”
Kampani last month helped his father Nimesh negotiate the breakup with Morgan Stanley, the world’s second-biggest securities firm. The US bank acquired the equity sales, trading and research teams from the venture for $425 million (Rs1,835 crore).
JM retained the retail, investment banking and fixed-income units that generated 45% of revenue and a client list including Reliance Industries Ltd and three-quarters of India’s top 100 companies. By going alone, JM may struggle to meet its biggest clients’ appetite for funds and financial services as Indian companies embark on record stock sales and acquisitions.
“If you are not a global institution, where you can access capital from across the world, you are handicapped,” Ravi Menon, investment banking co-head at HSBC Securities & Capital Markets Ltd, said in Mumbai.
“But I see no reason why you can’t have Indian MNC banks the way you have Indian MNC companies,” he said, referring to multinational companies.
“Of course, it will take time.” Morgan Stanley joined Goldman Sachs and Merrill Lynch & Co. in winding down their joint ventures in India, where a stock- market rally helped lift share sales to an all-time high last year and propelled a record $35 billion of announced takeovers so far this year.
“The important things is that if all big names in the world are coming to this country, then there is obviously a strong business case to be here,” said HSBC’s Menon.
JM Financial plans to hire at least 30 research analysts over the next 12 months, Kampani said. Other banks are building their teams, increasing competition for analysts and traders. BNP Paribas SA on 13 March said it will spend $46 million to buy a 27% stake in Kochi, India-based brokerage Geojit Financial Services Ltd, to gain clients in Asia’s fourth-largest economy.
“You can’t cover 300 stocks in one year and if you buy something you have coverage right there,” Vishal Kampani said. “Equity research is the core and any organization we acquire will have to have strong equity research.”
From April 1999 until the 22 February announcement of the split JM Morgan Stanley led in India with 84 mergers and acquisitions worth $32.7 billion and a market share of 22.8%, compared with UBS AG’s 17 deals for $32.5 billion and 22.7% share, according to data compiled by Bloomberg.
“JM has the strength of its local relationships,” said Jayesh Desai, a national director at Ernst & Young based in New Delhi. “If you are a Morgan Stanley affiliate, it comes to you on a platter. Similarly, from a Morgan Stanley perspective, relationships came on a platter from JM.”
The company helped the billionaire Ambani brothers split their businesses, with the elder Mukesh keeping Reliance Industries, and the younger Anil, Reliance Energy Ltd. It was the financial adviser for Novelis Inc. during the aluminum-sheet maker’s acquisition by Hindalco Industries Ltd.
For the duration of the seven-year partnership, JM Morgan Stanley ranked second as an underwriter, with a 15.7% share after Merrill Lynch, helping arrange $5.69 billion from 53 share sales, according to data compiled by Bloomberg. It helped Oil & Natural Gas Corp. raise $789 million selling shares in 2004, ICICI Bank Ltd sell $810 million of shares in 2005, and Tata Consultancy Services collect $390 million from its initial public offering in 2004.
JM Financial will look for alliances from overseas banks to get a share of growing offshore deals, Kampani said. The Mumbai- based securities firm will look at region-specific alliances in Europe, Asia and North America, he said.
“The obvious challenge is that the larger deals from India are increasingly cross border, and the sourcing ability to do cross-border deals gets restricted,” said Desai.
“As the universe starts expanding and India gets increasingly linked it will become increasingly important to have your linkages. That clearly is going to be an area of concern for them.”
Morgan Stanley, which formed two joint ventures with JM Financial in April 1999, ended the alliance to develop its own “full-service India operation,” Hans Schuettler, Morgan Stanley Asia’s chief executive, said on 22 February.
“Capital markets are going to change much more in the next 10 years than in the previous decade” said Kampani.
JM Financial Chairman Nimesh Kampani is a member of Bloomberg’s Asia-Pacific advisory board of executives.