European financial services firm BNP Paribas has sold 100 percent stake in retail broking firm Sharekhan for Rs 3,000 crore, thus booking a profit of 50 percent after acquiring the stake at Rs 2,000 crore back in 2018. This indicates 8.5 percent annualised return. Now all eyes are on its stake in Geojit Financial Services - another retail broker.
As per the latest shareholding pattern of Geojit, BNP Paribas holds a 24.67 percent stake which is valued at about Rs 410 crore. Back in 2007, the company had acquired 33 percent stake in Geojit for Rs 207 crore. So, its remaining stake is currently 2.66 times its original investment or approximately an annualised return over 6.3 percent.
Also Read: BNP Paribas sells Indian retail broking arm Sharekhan to Mirae Asset Financial for Rs 3,000 cr
BNP Paribas' decision to sell Sharekhan aligns with its strategy to concentrate primarily on its banking operations. Does this mean it will sell Geojit stake, too, which has yielded lower return?
All evidence thus far suggests the bank may be looking at a sale. Thus far, BNP Paribas has been slowly cutting its stake through the open market. Since its acquisition in 2007, its stake has been down from 33 percent to 24.67 percent.
The only difference between the two investments is that BNP Paribas exited the board of Geojit following its acquisition of Sharekhan back in 2018, and did not have any say in its operations.
"Sharekhan was a complete subsidiary of BNP Paribas and the latter was involved in day-to-day operations, too. Meanwhile, it is only a financial investor in Geojit and there are no representatives of BNP Paribas on Geojit's board," said a market observer, who did not wish to be named.
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BNP Paribas' sale of Sharekhan
Sharekhan has now been acquired by Mirae Asset, which is merely a transfer of ownership and not signs of consolidation in the broking industry, believe industry players. It remains to be seen whether Mirae Asset merges Sharekhan with its app mStock or not.
"Mirae Asset has not been able to go aggressive in the HNI and retail space despite several product launches and rock bottom pricing," said the head of another top broking firm, on the condition of anonymity.
As of November end, Mirae Asset had 2.42 lakh active clients while Sharekhan had 6.24 lakh active clients.
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India's broking industry - a paradigm shift
According to the consultancy firm Bain & Company, the domestic retail brokerage industry's revenue might more than double over the next five years. The rise of India's mass-affluent and affluent segments, along with rising financial literacy, have propelled this increase.
Revenues from the retail brokerage sector in India have already doubled, from Rs 14,000 crore in FY19 to Rs 27,000 crore in FY23. The top five brokers in terms of NSE active clients are Zerodha, Groww, Angel One, Upstox and ICICI Sec.
COVID-19 was a turning point for retail investors' participation in capital markets, with several discount broking firms cropping up. Thus, the average revenue per user (ARPU) for the sector has decreased from about Rs 6,000 in FY19 to Rs 5,000 in FY23, the report added.
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