HSBC investdirect to focus on NBFC business

Don't want to miss the best from Business Standard?

To delist from exchanges, may exit merchant banking.

HSBC InvestDirect, formerly known as IL&FS Investsmart, plans to focus on increasing the size of its non-banking finance business in 2010.

The business shrunk to Rs 300 crore in the fourth quarter, from Rs 1,500 crore a year ago, due to a fall in initial public offer (IPO) financing, margin funding and promoter funding, in line with reduced capital market activity.

“Loans against shares and margin funding are important for us and we have seen some pick-up in activity, especially in loan against shares, with consumption having picked up,” said Manasije Mishra, chief executive officer, HSBC InvestDirect.

The IPO financing business of most broking firms has been in the doldrums due to market volatility and poor post-listing gains. The non-banking finance arms of brokerage houses lend money to investors for investing in IPOs. Experts say margins on lending for IPOs are quite attractive, as high as 6-7 per cent in some cases.

The company has reduced exposure to promoter funding as it believes the risk-reward equation is no more attractive. Sources said HSBC InvestDirect was looking to exit the merchant banking business, with parent HSBC being active on that front. It recently exited the insurance broking business, consequent to global sale of HSBC’s insurance broking to Marsh. The company had to exit commodities broking in 2008 as the Reserve Bank of India does not allow banks to be present in this business.

Another focus area in 2010 will be online trading. “We have significantly strengthened our systems and added features such as ETF (exchange-traded fund) trading. We have also included after-market trading, which has seen good response from professionals and NRIs (non-resident Indians),” said Mishra. The contribution of online trading to revenues rose from 5 per cent in January 2009 to 20 per cent at the end of 2009.

HSBC InvestDirect has 77 branches and operates through 150 franchisees. It is looking to expand the franchisee model by bringing in more partners for Tier-II and Tier-III towns. The company is targeting high net worth individuals and frequent traders to expand its retail operations.

IL&FS Investsmart had a small institutional broking business, which it exited after the acquisition.

HSBC had acquired 73.21 per cent stake in IL&FS Investsmart for Rs 1,110 crore. It acquired the stake from E*Trade Mauritius (43.85 per cent) and an additional 29.36 per cent stake from IL&FS. HSBC came up with an open offer, pursuant to which its stake went up to 93.86 per cent. HSBC InvestDirect plans to delist from the Bombay Stock Exchange (BSE) and the National Stock Exchange and has already informed these two.

It is currently trading at Rs 279 on the BSE. The market cap is Rs 1,969 crore. The stock touched a 52-week high of Rs 294.95 on April 9.