What ICICI Securities delisting amid a growing retail investor market says about the financial sector
- It reflects a nuanced strategy to harness synergies and adapt to an evolving investment climate dominated by tech-savvy consumers and competitive digital platforms
On 25 June 2023, ICICI Securities announced its delisting plan through a scheme of arrangement. Under this scheme, shareholders of ICICI Securities will receive 67 shares of ICICI Bank for every 100 shares they hold. Upon successful implementation, ICICI Securities will operate as a wholly owned subsidiary of ICICI Bank.
As of 31 March 2023, ICICI Bank owned 74.85% of ICICI Securities' equity shares, leaving the remaining 25.15% in public hands. The delisting aims to harness synergies between the two companies, aligning with ICICI Bank's focus on customer-centric strategies.
In February 2024, ahead of a crucial shareholder vote on the company's public listing status, several mutual funds made strategic investments in ICICI Securities. These investments drew attention as the funds purchased shares of ICICI Securities at a higher rate than those of ICICI Bank.
Both management and minority shareholders of ICICI Securities are preparing for an extraordinary general meeting (EGM) scheduled for 27 March 2024, where approval for the company's scheme of arrangements with ICICI Bank will be sought.
Shares of ICICI Securities had continued to trade at a premium last month, despite the announcement of the share swap ratio. The volume-weighted average price of its shares during this period was 0.75 to 0.81 times that of ICICI Bank shares, translating to a 12% to 21% premium. This premium presented shareholders with an opportunity to potentially increase the standalone brokerage's value by voting against the resolution, potentially driving up ICICI Securities' share price.
When the share swap ratio was first announced in June 2023, the spread between the listed bank and the broking entity was ₹21 a share. This discrepancy allowed funds to buy shares of ICICI Securities and sell ICICI Bank shares, securing a risk-free profit of ₹21 per share. Termed special situation strategies, this approach enables funds to exploit share price differences between two companies without incurring taxes.
Traditionally, banks in India operate brokerage services through privately held subsidiaries. Given the cyclical nature of business of ICICI Securities, its delisting and integration into ICICI Bank, which has a wider client ecosystem, could enhance the brokerage firm's financial performance. The brokerage industry is highly competitive, with ICICI Securities involved in investment banking, institutional business, retail, and primary dealership, especially facing intense competition in the retail segment. Integration with ICICI Bank could help mitigate the brokerage business's inherent fluctuations and open new avenues in wealth management and lending.
Simultaneously, the securities industry dynamics are undergoing significant changes, with many standalone businesses shuttering due to intensified competition and evolving client demographics and expectations. This move by ICICI Securities stands in contrast to the trend observed over recent years, where many banks or companies with broking arms have sought to list them publicly. It underscores the prevailing pressures within the industry.
The pandemic accelerated the rise of digital brokers, which have attracted nearly 60% of the current client base since the outbreak. Gen Z and millennial investors, drawn by user-friendly interfaces, flat-fee structures, and quick account opening processes, have significantly contributed to this growth. As of September 2023, according to data from the National Stock Exchange, Groww leads with 6.63 million active investors, followed by Zerodha with 6.48 million, and Upstox in fourth place with 2.19 million active investors. Angel One and ICICI Securities hold the third and fifth positions, respectively. The top five discount brokers, including Zerodha, Upstox, Angel One, Groww, and 5Paisa Capital, now command 60% of the market share, previously dominated by traditional brokerage houses.
Years ago, disruptors like Zerodha transformed the industry with their discounting model, which remains a hallmark of digital brokers. While digital brokers typically charge a flat fee of ₹20 for intraday and F&O trades, traditional brokers, too, have lowered their fees and stepped up their digital engagement efforts. Consequently, pricing is no longer the sole differentiator, but traditional BFSI entities still face challenges in fully embracing the digital-first preferences of younger generations.
For traditional securities businesses like ICICI Securities, the imperative is clear: "If you cannot beat them, join them." Aligning with the parentage of a bank provides a strategic advantage, leveraging the broader client base.
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