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Investors drive in droves towards fundmen

Rakesh P Sharma & Janaki Krishnan in Mumbai

The retail portfolio management business is undergoing a drastic change with investors shifting in large scale from their traditional stock brokers to big institutional fund managers, especially after the March 2001 stock market crash.

Several major institutions including HDFC Securities, Kotak Securities, J M Morgan Stanley Direct and ICICI Direct are reporting a spurt in the number of clients and simultaneously drawing blueprints to further attract new customers.

On the flip side, several mid-size brokers are feeling the pinch of the desertions. Explaining the rationale behind the trend, Sunil Shah, managing director, HDFC Securities, says that the frequent recurrence of security scams has created a sense of uncertainty in the minds of general investors, especially the ones who are either just venturing into the equity markets or are veterans of the markets, having seen many scams.

This uncertainty is forcing investors to move to respected institutional brokerage houses. Market sources say that investors are moving to larger "branded brokerage houses for security", even though the payoff involves losing the personal contact with the dealers themselves.

HDFC Securities has added more than 40,000 customers in the last six months and plans to acquire at least another 30,000 clients in the next six months.

Milan Rao, head of marketing and business development, J M Morgan Stanley Direct, said: "When you are sick, you turn to a doctor, but for your investment needs, do you turn to an investment advisor? No. Perhaps its time to change that. With investment banks and brokerage houses launching investment advisory businesses in India, this industry is moving ahead at a furious pace, despite the relatively weak capital markets. Or is it because of it?"

J M Morgan Stanley Direct, which is a 50:50 joint venture between J M Financial and Morgan Stanley Dean Witter, too, is seeing a significant rise in retail accounts.

It currently manages more than 45,000 retail accounts directly, and more than 50 per cent of these clients have been added in the last 12 months. It is now looking to increase the number of clients by at least another 50 per cent in the coming months.

However, Kotak Securities continues to remain the largest player in the business. C Jayaram, director of Kotak Securities, admits that its clientele in the business has increased but attributed it to their track record.

"We have been having significant increases in our portfolio but I would not put this shift to uncertainty or any safety factors," Jayaram said.

According to him, most of the people who have been investing on their own have not done well and have decided to place their money with professional fund managers and it was Kotak's track record which was attracting them.

Anup Bagchi, the chief operating officer of ICICI Direct, said that their customer size had increased especially in the last three months. The biggest pinch of the shift is being reflected more by the mid-size brokerage firms which have survived on retail business for several years.

A Mumbai-based broker with a large retail-base said, "Retail business is down almost 40-45 per cent in the last 12 months mainly on account of sluggish sentiment in the stock markets and big retail investors shifting to big institutions."

Meanwhile, several new players are drawing plans to get into retail portfolio business in a big way. ICICIdirect.com, part of the ICICI group, which till recently focussed on the Internet broking business is now entering offline broking business through direct business catalyst model. Tata TD Waterhouse Securities is another new entrant in this business through business partner relationships.

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