With the entry of corporate giants into the largely conventional broking business in India, traditional business families who own brokerages are cashing out one after the other as they find it difficult to raise the needed capital to maintain traction.
Soon after the Infrastructure Development Finance Company (IDFC) raised its stake to 66.67 per cent in SSKI, the entity under which broking brand Sharekhan operates, a few more brokers are understood to be in talks with a clutch of financial firms to sell their stakes.
While the Jain family that owns Networth Stock Broking is learnt to be in talks with a British financial firm to sell up to 10 per cent stake for under Rs 100 crore, sources in broking circles said US-based Merrill Lynch is interested in picking up the insurance distribution arm of arm India Infoline.
“Every brokerage around is looking for a strategic partner. And foreign financial firms are looking for an opportunity to enter India. We are in talks with a British financial firm, whose name can not be revealed now,” said a high-level official in Networth Stock Broking.
Earlier, there were reports that Merrill Lynch, which currently holds about 14 per cent in the Mumbai-based brokerage India Infoline through stocks and convertible shares, would pick up a substantial additional stake in the company. The company had denied this.
Meanwhile, the market is abuzz with reports that Japanese financial services firm Nomura Holdings and the European giant Barclays are in a race to acquire Vallabh Bhansali’s merchant banking and broking firm Enam Financial Consultants, while the JV Gokal Group-owned Brics Securities is up for sale and has seen interest from global financial players such as Fortis and Nikko Cordial Securities.
The entry of corporate giant Reliance into the broking business has seemingly caused a drastic change in business scenario for brokerages. “I am of the third generation looking after this business. This business has been run on mental ingenuity. But now, with the entry of big players, one needs capital beyond imagination to maintain the position. Becoming a financial supermarket is the sole way to survive in this environment and that requires huge capital,” says Shripal Morakhia, chairman of Sharekhan.
JM Financial recently parted ways with Morgan Stanley by selling its holding in a joint broking arm and buying the latter’s holding in the investment banking business. Hence, it is in JM Financial's interest to develop a foothold in the broking business. Similarly, the ASK group recently bought Raymond James out of its joint venture ASK Raymond James, while BNP Paribas bought a 27.18 per cent stake in Geojit Financial Services.
Likewise, Anand Rathi Securities sold about 20 per cent to Citigroup Venture Capital International, a leading global private equity player, while the Bank of Muscat bought a stake in Mangal Keshav Group.