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Indian investment banks hold their own against foreign rivals

Indian investment banks hold their own against foreign rivals
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First Published: Thu, Jan 10 2008. 12 01 AM IST
Updated: Thu, Jan 10 2008. 12 01 AM IST
Foreign investment banks that made a beeline to India attracted by the country’s booming economy have not really been able to make a dent in the business of local competitors. One investment banker at an Indian firm said that this is because local banks can service small as well as large customers. Another said that it was because of the “trust” factor.
Bloomberg’s league tables for 2007 shows Indian investment bank Kotak Mahindra Capital Co. Ltd on top in terms of domestic fund raising by Indian companies. New global players such as Lehman Brothers Securities Pvt. Ltd, Credit Suisse First Boston (I) Securities Pvt. Ltd (CSFB) and Goldman Sachs India Securities Pvt. Ltd do not even figure among the top 5 in this category.
However, some foreign investment banks have marginally improved their positions. For instance, Goldman Sachs India Securities moved to the No. 8 from No. 11 in 2006 and doubled its market share (in terms of money raised) to 4.4%. Lehman Brothers, for which data is available only for 2007, came in at No. 10.
According to Bloomberg, companies sold shares worth Rs70,000 crore through 135 issues in 2007. This includes funds raised through initial public offerings (IPOs), qualified institutional placements and follow-on offerings.
Dealogic, another firm that tracks investment banking activity across the globe, said in a recent release that India’s equity capital market volume reached $31.5 billion (Rs1.23 trillion) from 197 deals in 2007, up 56% from $20.2 billion in 2006, and accounted for 14% of total Asia Pacific (excluding Japan) volume in 2007.
According to Bloomberg data, Kotak Mahindra’s market share has increased from 5.3% in 2006 to 13.4% in 2007, facilitating the company’s move up the tables, from No. 7 in 2006 to No. 1.
The company displaced Merrill Lynch and Co. from the top slot. And Enam Securities retained its fourth position with a market share of 10.4%. Citigroup Inc., which managed 18 issues, was the second largest player, moving up from the No. 3 in 2006.
JM Financial, which parted ways with foreign partner Morgan Stanley in June 2007, was the fifth largest player and managed 11 issues in 2007. The two companies now compete for business.
According to an investment banker with a multinational bank, the business was due for some segmentation.
“On one hand, it is quite clear that the Indian investment banking market has grown significantly. On the other hand, it is becoming clear that some banks will have a role to play in certain sub-segments, or will become niche players and only very few players will be present and successful across the entire gamut of investment banking products,” said Pramit Jhaveri, head, global banking, Citi ­India.
The interest of multinational investment banks in India started peaking in December 2005 when Merrill Lynch took a controlling stake in its Indian joint venture company, DSP Merrill Lynch. It bought out 48% stake from Indian promoter Hemendra Kothari.
A few months later, Goldman Sachs and Co. parted ways with the Kotak Mahindra Group, controlled by Uday Kotak. Unlike Kothari, Kotak bought out the stake in the joint venture and Goldman Sachs set up its shop in India independently.
Besides foreign players parting ways with local partners and coming on their own, there were also new entrants such as Lehman Brothers.
“Every transaction in our business has three aspects—functionality, trust and brand. People tend to overemphasize on the brand aspect. But we have seen that even if you keep a low profile, people would still like to work with you. At the end of the day, you trust the caring mother or the family doctor,” said Vallabh Bhansali, chairman, Enam Securities.
He added that the entry of new players has also led to undercutting of fees but said that this happens “all the time in the business.”
Chetan Savla, executive director and co-head of equity product group at Kotak Investment Bank, said that firms such as his have the ability to service capital needs of small and large companies alike. “There was a time when we were doing five to seven transactions in a year and now we tend to close one transaction every week,” he added.
An investment banker with a local bank said that the strong balance sheets of foreign banks sometimes works to their disadvantage. In small public offerings, most of the big foreign banks lose out as the company going public can’t afford to pay the minimum fees they command to cover costs, added this banker, who did not wish to be identified. And a large public offering needs the banker to have a vast distribution network to ensure wider participation, and that is where the domestic banks score.
Even smaller and newer Indian investment banks such as Edelweiss Capital Ltd and Almondz Global Securities are making their mark in the league tables.
Goldman Sachs and Lehman Brothers did not respond to queries emailed to them.
However, one area foreign banks still dominate is global mergers and acquisitions. According to the Dealogic Investment Banking Review for 2007, cross-border merger and acquisitions, involving Indian firms, reached $60.1 billion via 1,274 deals, up 109% from 2006.
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First Published: Thu, Jan 10 2008. 12 01 AM IST