Nimesh Kampani’s decision to sell JM Financial’s 49% holding in JM Morgan Stanley Securities Pvt Ltd on Thursday did not surprise the market as foreign brokerages have been increasingly strengthening their hold over the institutional broking space, driven by their existing relationship overseas with foreign funds.
The trend will intensify with foreign institutional investors (FIIs) playing a larger role in Indian equity markets. FIIs made a net investment of $10 billion (Rs44,000 crore then) in 2005 and $8.3 billion in 2006 in Indian stocks. Till 22 February, net FII investment this year stood at $960 million.
“As the capital flow increases, it is only natuaral that foreign brokerages will play a larger role in Indian market,” said a senior executive of a foreign brokerage which has recently set shop in India.
An executive at another foreign brokerage said the trend would be replicated in the fixed income securities segment, too, over the next few years as India progresses towards full capital account convertibility. “We expect this to happen in 2009. Once that happens, the fixed income market would become more complex with introdution of derivative products. Foreign brokerages are bound to play a larger role (in it),” he said.
The head of a domestic brokerage admits that a single-country broker would find it increasingly difficult to compete with global players. “Investors are not looking at India alone. India is only one leg of investment. They are simultaneously investing in other markets and arbitraging continuously. Here, global houses have advantage over us,” he points out.
No independent data is available on the ranking of various players. However, many brokers say in private the institutional broking space is led by foreign brokerages such as CLSA, Merrill Lynch, HSBC, JP Morgan, Citi Group and Maquire, with domestic firms such as Enam, Kotak, SSKI, ICICI Securities and Edelweiss also playing a key role.
Leading Indian players, meanwhile, are expanding their retail presence across the country. The move is driven by the huge growth in business over the past few years.
The growing importance of India and its growing retail market are the factors behind the series of split-ups between foreign brokerages and their high-profile domestic partners. With business volume from India increasing, the foreign partners want to own all the growth, rather than part of it. Commenting on Morgan Stanley’s decision to go its own way, JM Financial chairman Kampani on Thursday said: “If we were in their place, we too would have taken the same decision.”
The share of top brokers in the total turnover in the National Stock Exchange is growing over the last few years. The top five brokers now handle nearly 16% of the total business on NSE compared with 7% in 2001-02. In fact, the top 25 brokerages handle nearly half (43.4%) the total business now, almost double of what they handled in 2001-02.
The leading brokerages in the retail space include ICICI Direct, India Infoline, Sharekhan, Kotak, Geojit Securities, Religare and Motilal Oswal, with players like Emkay Shares and Angel Broking also growing fast.
“We grew from 170 branches last year to 560 branches this year,” says R. Venkataraman, director, India Infoline. Talk of doubling and trebling business has become common among retail brokerages.
“We had 45 branches last year, which have grown to 180 today and will grow to 250 branches next year,” says Krishna Kumar Karva, managing director, Emkay Securities, a Mumbai-based brokerage. “We are expecting a CAGR of 70% for the next three years,” adds Dinesh Thakkar, chairman and managing director of Angel Broking, which is planning to add 250 branches to its existing 73 branches.