Destimoney Securities (erstwhile Dawnay Day AV) has been making a smooth progress in the equities business after Asia-focused growth capital firm New Silk Route bought out the company in August 2008. In a wide-ranging interview, with Business Line, Destimoney's Managing Director and CEO, Mr Sudip Bandhyopadhyay, talked about the need for fresh capital infusion, the company's growth, and why an exchange for small and medium enterprises is ‘critical.'
Your promoter, New Silk Route, has sold its 51 per cent holding in the firm. How have you strategised this sale?
In January, the company decided to sell stake to fund its expansion. The promoter agreed to dilute its stake down to 49 per cent. Accordingly, we sold 15 per cent to Dhanalaxmi Bank, 26 per cent to a large non-resident Indian, Mr Raghuvinder Kataria, and 5 per cent each to two listed domestic firms, Bilcare Ltd and Man Made Fibres Ltd. Our strategy was to have 25 per cent (equity holding) by Indian firms for ease of obtaining approvals, since foreign companies face hurdles for clearances in commodity broking, insurance broking and so on. We do not envisage any further dilution of stake.
Does your company need to retrench employees ? How are your margins doing?
We are growing in number. The headcount has gone up to 650 from the 200 we started out with. Another 400 people are joining us in the next two months. Our branches have multiplied to 38 from 12 in January. Besides equity, commodity and currency trading, our verticals include wealth management and distribution of financial products. We launched the Gold Reserve Fund two months ago to tap demand for investment in gold. Our market share in equity has increased seven-fold to 0.5 per cent. The average day-trading turnover has also jumped six times since we began, to Rs 600 crore.
How have you managed to grow at a time when other brokerages are facing a tough time?
We have adopted the franchising route to acquire clients. Our franchisees now number 400, from 68 when we started broking. Since the franchisees come with their own clientele, our customers have increased and hence the turnover.
What effect will the US debt crisis and Eurozone worries have on Indian markets?
From my interactions with the members of the Hong Kong Stock Exchange board, foreign institutional investors (FIIs) see India as a robust market. Despite uncertainty on account of the crises, FII interest in India will not wane notably. India, to them, is a counter bet to Brazil, Russia and China. FIIs stream their money into Brazil and Russia if commodity prices go up; into China if its export market does well. India being neither attracts money just by its domestic market. To counter balance their investments in B, R and C, they remain invested in India also.
Which are the sectors you think will do well in the coming days?
Global pharmaceutical companies are looking to set up manufacturing bases in India, due to its lower cost of production — hence, the frequent acquisitions in the sector. More than large-cap companies, medium and small cap companies will perform well in the future. Secondly, infrastructure-related stocks, especially road construction, will pick up on account of the flurry of road projects being set up now. Thirdly, auto and ancillaries (will do well), if the acquisitions and usage of India as a sourcing base is any indication. Avoid metals and real estate — metals because China aims to cool its metals demand, and real estate for its corporate untrustworthiness and high prices for buyers due to rising interest rates.
Is the interest rate hike regime affecting infrastructure. Have the hikes touched their peak?
It is. There are two facets of inflation control: fiscal and monetary. The latter is what RBI has been tightening over the last 15 months. While the fiscal policy, laden with subsidies and schemes like the National Rural Employment Guarantee Scheme, ensures flow of money into the economy. This also has to be narrowed to fight inflation. It is not even a trade-off between growth and inflation as some claim. We've sacrificed growth, but has inflation come down? I hope interest rates have touched their peak.
How does policy paralysis, or inaction in terms of policies to changing economic trends, affect FII flow?
It makes the foreign investor sceptical. But a favourable government move will see FII money pouring in. A (recent) move to hike diesel prices demonstrated that. To an extent, despite policy paralysis, money flow will continue because of India's counter-bet image, or, at least, as long as India grows faster than the developed markets.
Are you looking to buy firms? Or has any firm approached yours for acquisition? Is it the right time to buy broking firms?
‘Yes' to all three (questions). Many brokerages are witnessing shrinking margins, reduced retail interest and are looking for some sort of structuring. We think this is the right time to buy. We'll have a transaction within this year.
What are your views on the SME Exchange? Won't the 100 per cent underwriting norm dent margins?
The SME Exchange is critical for we have many companies seeking to list but without the minimum capitalisation. It's an entry for small enterprises into the equity market. Underwriting is like insurance. It will prevent exorbitant pricing of issues, which has hit public confidence in the equity market.