Seems to be the moment of reckoning for local broking firms

Santosh Nair
moneycontrol.com

During the bull market of 2007-08, Japan's Nomura was widely tipped to acquire Enam for USD 1 billion. In November last year, Enam eventually sold its investment banking and equity businesses to Axis Bank for Rs 2067 crore (roughly USD 460 million). At that time, many felt it was a big come down for the Enam promoters, having had to settle for less than half the valuation it was said to command some three years ago. But eight months on, it appears as though Enam founders Vallabh Bhansali and Nemish Shah could not have hoped for a better timing to the deal.

Promoters of quite a few domestic brokerages are said to be doing the rounds of banks and private equity firms, hoping to sell a strategic stake to them, or even the entire business. And despite most of these firms available at less than the book value, buyers are not forthcoming. And in cases where they have shown interest, the bids are way below what the brokerages are quoting.

Over the weekend, Rakesh Jhunjhunwala-promoted Alchemy Group closed down its institutional broking business, which gets its revenues from executing share trades for foreign and domestic institutional investors.

Market buzz is that Alchemy was in talks to sell the business to a foreign brokerage which had acquired a leading retail broking chain some years back. But the parties could not reach a mutually agreeable price, and the business had to be shuttered.

Likewise, most domestic brokerages with an institutional broking division have been feeling the heat for a while now. Some of the listed entities are hanging on, because of deeper pockets compared to many of their weaker rivals, and also in the hope that there will be less competition when things start looking. But many brokerages are unlikely to survive the current downturn in the market.

And even some of the large listed players are trying to figure out ways to have a meaningful presence in the institutional broking business. That is because the institutional broking pie has not grown in the last four years, and competition from foreign firms has been fierce.

Have a look at these numbers. In calendar 2007