Herd on the street

In February, when sentiment on dalal street had hit rock-bottom, thanks to frenzied selling by foreign institutional investors (FIIs), Anant Raj Industries, a North India-focussed construction and infrastructure major, went on to raise $151 million (Rs 604 crore) via an issue of global depository receipts (GDRs) on the Luxembourg Stock Exchange. The merchant banker involved in the transaction was India Infoline. Now, a local brokerage playing a role in raising money from the overseas market would have been unthinkable a few years ago. It still is—particularly at a time when global markets are riding a rollercoaster. What makes India Infoline’s feat remarkable is that it helped Anant Raj raise dollars at around the same time eight merchant bankers couldn’t help another Indian company, Emaar MGF, sell its initial public offering (IPO). Emaar had to withdraw the issue after investors failed to bite—despite the presence of such domestic and international names such as Enam Securities, Kotak Mahindra, DSP Merrill Lynch, Citigroup, Goldman Sachs, HSBC and JPMorgan.

India Infoline isn’t an isolated local brokerage that’s stretching its wings. A clutch of domestic brokerages, most of which have IPO-ed in the recent past, is also moving beyond broking, into other activities in the financial services space. These include investment banking, wealth management, consumer finance, asset management and private equity. Consider: In January, retail broking major Motilal Oswal Securities represented Great Offshore when it acquired the UK-based SeaDragon Offshore for $1.4 billion (Rs 5,600 crore). This is the second-largest M&A transaction in the Indian oil & gas drilling sector. This isn’t Motilal Oswal’s first M&A deal. In June 2006, it had helped the Chennaiheadquartered Aban Offshore acquire a majority stake in Norway’s Sinvest for $1.35 billion. Similarly, it was another brokerage Edelweiss (the firm started as an investment bank) that helped G.R. Gopinath of Deccan Aviation join hands with Vijay Mallya’s Kingfisher Airlines (earlier, Edelweiss did an IPO for Deccan). Says Mayank Shah, CEO, Anagram Securities: “Broking business has become commoditised. To retain the client, it is necessary to provide all services and, therefore, brokerages have got into different businesses.”

Say hello to the brash new kids on Dalal Street. Flush with funds, thanks to till-recently booming primary and secondary markets as well as generous infusions by venture capital and private equity majors, most of these single-service houses (primarily stockbroking) are now planning to get into areas that have been traditionally the preserve of dyed-in-the-wool deal makers (think JM’s Nimesh Kampani, DSP’s Hemendra Kothari, Uday Kotak and Enam’s Vallabh Bhansali). Take a look at the plans of some of these players: Edelweiss, which went public in November 2007, is now eyeing mutual funds and insurance. CMD Rashesh Shah’s big ambition is to get a banking licence. Motilal Oswal has big plans for private equity and investment banking. Also eyeing investment banking, along with consumer finance, is the 13-year-old India Infoline.

If they’re dreaming big, it’s because of the good things that money can do—one of them is to lure the best people, many of them from foreign firms. For instance, Bharat Parajia, Director Sales with CLSA, moved to India Infoline last May. That’s enabled Nirmal Jain, Chairman & MD, India Infoline, to move beyond retail broking, into institutional broking, wealth management and investment banking. “I was able to make him (Parajia) a part of the business (by giving him a stake in the company). The sense of being an entrepreneur is much greater than being a professional and that has helped us to take on the biggies.”

A booming stock market has also ensured that these local shops can pay global-scale salaries. Says Amit Rathi, MD, Anand Rathi Securities: “Today, to match a global salary is not difficult. In fact, our ability to provide a platform to work with pleasure rather than pressure has seen many leaving global firms and joining us.” He’s dead right. Recently, three key honchos from Citigroup—Ratnesh Kumar, Narayan Mulchandani and Rajesh Mayani—joined up with Anand Rathi.

Kumar has taken over as CEO (Institutional Equities) after an eight-year stint as Head of Research at Citi; the USbased Mulchandani joins as Head of Sales, and will now work out of Hong Kong; and Mayani, after four years at Citi as Director (Institutional Equity), joins Anand Rathi as Executive Director in the Institutional Equities division. This has strengthened the institutional business at Anand Rathi Securities, whose model is focussed on third-party distribution and wealth management. Being funds-flushed also allows these players to flag off their own private equity (PE) funds—Motilal Oswal, Anand Rathi, Edelweiss and JM Financial have done just that. Motilal Oswal is on the verge of launching its second PE fund. Already, 80 per cent of its first PE fund of $125 million has been invested. The PE business also acts as a hedge during bad times as it’s the link between the primary market and M&A business.

Indeed, as Jain of India Infoline will agree, it is all about money. But as Oswal warns: “Today everyone has money, but only those who are able to make money for their clients will survive in this cut-throat business.” The men will clearly be separated from the boys in the years ahead.