Over recent years, many brokerages expanded their operations but current market conditions are forcing a rethink. In a crowded market, not many have managed to crack the institutional business segment. Vikas Khemani, president and head of institutional equities, Edelweiss Financial Services, tells Malini Bhupta what it takes to survive and thrive in this business. Edited excerpts:
Even though the overall mood is grim and several brokerages have scaled down their institutional business, how are you able to do well?
Every business has a cycle and so does this. What determines your position in the industry depends on your commitment and long-term vision about the business. When we started in 2002, the overall market environment was grim, but we built a high-quality franchise from scratch.
What was the size of institutional business in 2002 and how has it grown?
The institutional business, in terms of the commission pool, was Rs 1,000 crore in 2002-03, which went up to approximately Rs 5,000 crore in 2008. This has come down to approximately Rs 2,200 crore in financial year 2012. Of this, the break-up between domestic and foreign brokerages is one-third and two-third respectively.
Many came over the past few years and some have even shut shop. Please comment.
The market boom between 2006 and 2008 attracted new players, both domestic and foreign. With the turn of events, global crisis, market slowdown and margin squeeze, many went out of business. Players with less than one per cent market share will find it difficult to sustain and even survive.
Given that a large part of the business is controlled by foreign brokerages, where do you stand in the pecking order?
In 2002, we were the smallest player in the institutional equities business. Ten years on, we are the largest in terms of revenue market share among domestic brokerage houses with about five per cent market-share.
What does it take to crack the institutional business? How have you gone about building it?
Building a long-term sustainable institutional equities business is a process, not an event. It is built on four pillars — research, sales, corporate access and trading & technology. When we started we were not a big name. Hence, we had to carve a niche for ourselves. We went back to the drawing board and started investing in research, technology and the back-end.
We put a lot of focus on the quality of our research. We decided to take a look at thematic research, which was not common those days. We were the first to set up an institutional derivatives desk, while most of the market then stayed away from it, as it was a low commission business. We foresaw the trend of technology in 2007 when it was not even talked about in India. Today, we execute 50 per cent of the trades through automated trading technologies.