Rise and `fall’ of Karvy: Is rapid diversification source of trouble?

G Naga Sridhar Hyderabad | Updated on November 23, 2019

`Our entire history is a case study of turning adversity into opportunity’’ - This is how the Karvy Group proudly declares on its portal.

Then how the Hyderabad-based, nationally recognised broking house could push itself into adversity by `flouting’ norms?

This is the question lingering on the minds of many investors and industry experts now after Securities Exchange Board of India (SEBI) sprang a late evening surprise on Friday by banning Karvy Stock Broking Ltd for client defaults of Rs 2000 crore.

The Karvy Group is today a well-diversified conglomerate. Its financial services business is ranked among the top-5 in the country across its business segments. The Group services over 70 million individual investors in various capacities, and provides investor services to over 600 corporate houses, comprising the best of Corporate India.

Rapid diversification

While firm’s top management team remained out of bounds for media after the ban order, its portal makes no reference to ban yet. But a quick look into Karvy Group’s growth since its establishment in 1983 leads one to think that rapid diversification of the Group beyond its core competencies might have exposed the firm to the vagaries of the economy’s up and downs.

Founded by five dynamic `young men’ of a CA firm led by C Parthasarathy, Chairman and Managing Director, Karvy Group, the firm started registry services in 1985 and took up retail broking with Hyderabad Stock Exchange financial product distribution in 1990. Its growth picked up after commencement of debt market broking in 2003 followed by commodities, insurance, realty and online broking in later years.

In the last 10 years, it forayed into a range of businesses including telecom record management services, data analytics, and manufacturing of smart IT devices and consolidated all domestic voice business under Karvy DigiKonnect Ltd. Last year, it acquired HCL Services Ltd and renamed it Karvy Innotech Ltd and also hived down e-commence support services as Karvy Next Ltd.

The Group, which was founded with a modes capital of Rs 1.5 lakh in 1983, now has 21 companies in its kitty including its business process outsourcing arm, Karvy Global Services Inc USA and Karvy Inc, USA.

While diversification is a buzz word for growth, it could bring immense pressure in times of recession and could lead to diversion of funds. A recent inspection by the National Stock Exchange revealed the KBL transferred Rs 1096 crore to its group company. Karvy realty, during April 2016 – October 2019. With the present ban on broking and on-going investigations and likely penal actions, the fate of entire group now hangs in balance.

Published on November 23, 2019

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