Brokerage promoters raise own stake in bear market

Put your money where your mouth is. Promoters of some of the listed brokerages and financial services firms are literally doing that, by buying shares of their companies amid market slump, signalling confidence in an industry whose fortunes are directly linked with activity in the capital markets.

Consider this. In the past three weeks, C J George, founder of Geojit BNP Paribas Financial Services, has bought 175,370 shares of the Kochi-based brokerage from the open market. His sons, Jonesh and Jyotis, have also bought 50,000 shares each of Geojit, on July 28 and August 2, respectively.

“Right now, you are getting brokerage stocks at a very cheap price, close to their book value. For me, it’s a great opportunity to increase my stake,” said George, who started Geojit as a partnership firm with Ranajit Kanjilal in 1987. “This is perhaps the most painful time for the brokerage industry. But, I am extremely bullish on the log-term prospects of this business.”

Geojit shares, available at 1.19 times the 2010-11 price-to-book value, had lost nearly 43 per cent of their value in this year till Tuesday, as a fall in the cash market due to subdued retail participation and rise of the low-yielding options segment in the overall market volume hurt profitability.

Shares of other leading brokerages such as Motilal Oswal Financial Services and Edelweiss also lost 40 per cent in this year so far, compared with a nearly 20 per cent drop in the Bombay Stock Exchange benchmark, the Sensex. Apart from Geojit, promoters of other brokerages and financial services firms have increased stake in their firms. Passionate Investment Management, which owned 35.38 per cent stake in Motilal Oswal as of June 30, bought 550,000 shares of the Mumbai-based firm on August 26. “In general, it’s a good time to buy shares when there is pessimism,” said Motilal Oswal, chairman and managing director at Motilal Oswal Financial Services. “Passionate Investment buys and sells shares of various companies. There was some liquidity, so we thought of buying our own shares.”

JM Financial Trustee Company and senior Religare executives also bought shares of their firms last month. Rashesh Shah, chairman and co-founder of Edelweiss Group, had bought a million shares of his firm on July 14.

“There is definitely value in brokerage stocks. Some are trading at their historical laws,” said Santosh Singh, who tracks brokerages at Espirito Santo Securities. “However, these are not the stocks which will outperform the market in the next six to 12 months. If an investor has a three to four year view, he can consider buying brokerage shares.”