Indian equity brokerage firms and the ACTION..

There has been a lot of action recently in the equity brokerage sector. But it is interesting to see two different strategies being adopted by the players. On one hand we have a few firms like JM Financial and kotak who have decided to go out on their own by breaking their tie-ups with foreign investment banks.On the other hand we have Enam securities, Sharekhan, Geojit who have entered into partnerships with the foreign players.

JM to sell broking biz to Morgan Stanley for Rs 1,970 cr

Enam, JP Morgan in talks for alliance

Are Sharekhan, SSKI promoters exiting broking biz?

BNP Paribas picks 27.1% in Geojit Financial

Why are players in this space, in the first place, getting so active? The answer to that lies in some astonishing figures!! Investment banking houses have earned more than $200 million in fees from deals involving corporate deals compared to $150 million in the year 2006. Also, Indian corporates are today getting involved in a lot of HUGE cross border M&A firms. Look at the recent Hindalco-Novelis, Tata-Corus and the Hutch-Vodafone deal! Investment banking units are the direct beneficiaries of this trend.

Read this article to get the larger picture :)

I believe that local investment banking units are still pretty small compared to the global powerhouses like Goldman, Lehman, ML etc. and it would be definitely tough for them to win the large M&A deals on their own. They will not have the required financial syndication strength to finance the big deals. So it makes more sense to go in partnership with foreign banks who are also looking to roll out their presence in India. But on the other hand i feel they are pretty well positioned to get advisory roles because of the local expertise,which have higher margins.

So i believe companies like JM will definitely witness expansion in margins but on the other hand will take a hit on the topline.

Lets see which strategy works out best in the future. Only TIME will decide! :)

Let me know what you guys think about this.