Sharekhan, Your Guide to the Financial Jungle

Monday afternoon we visited Sharekhan, one of the leading retail stock broking firms in India. In 2007, annual revenues were 62.5 million USD (2.5 billion Rupees). We were treated to an overview of the India market opportunity, followed by an in-depth presentation and discussion regarding Sharekhan's evolving business model and given a peak at some future innovations currently being launched.

We met with Naresh Agarwal - Chief Financial Officer, Sandeep Nanda - Head of Research, Jadeep Aroda – Technology, and Shrikanth Iyengar who leads the Alternative Investments group.

Stock markets were first launched in India 143 years ago. Trading was conducted at a set time and place in Bombay and in other regional markets in various cities across India. It was not until liberalization in the early 1990s with the launch of the National Stock Exchange did stock market investing become a growing retail phenomena. The NSE established a computer-terminal based trading network, and in 2000 Internet trading became available for end-users.

Tax rules in India are favorable for trading and investing, with short-term capital gains at 10% and gains on investments with at least a one year holding period completely tax-free.

Sharekhan was originally launched with an exclusively online business model shortly after Internet trading was allowed. However the leadership quickly recognized the need to build a network of retail locations due to slow adoption of in-home Internet connections, and adopted a franchise model to accelerate the expansion of retail outlets beyond the pace of opening exclusively company owned outlets. This successful strategy enabled Sharekhan to expand to 679 retail offices in 234 cities in 2007 from zero just four years earlier. Today franchises outnumber company owned locations 4 to 1.

Sharekhan has a growing client base which consists of over 400,000 accounts, and over 50% of client transactions are performed through the online portal. Typical daily transaction volumes exceed 250,000 per day. India has a savings rate over 25%, and savings are expected to fund much of the capital needs of India's rapidly growing economy.

In the current environment, with their extensive retail presence, lower costs of labor, and the high lifetime value of clients, Sharekhan has chosen to employ a large number of “feet on the street” representatives who provide live demonstrations of the trading platform at prospective customers' homes. At this time, building a customer base organically is economically more attractive then a consolidation through acquisition-based approach.

This approach is working at Sharekhan, which has captured significant share in India's retail brokerage market. The firm consistently receives positive reviews from customers and recently Citigroup Venture Capital took note and acquired an 85% controlling interest in the firm.

The last presentation of the day, regarding the Alternative Investments group at Sharekhan, was quite interesting to those of us interested in finance specialties. This group focuses on derivatives and developed methods to profit on market inefficiencies through arbitrage and hedging strategies.



Sharekhan's leadership treated the SCU Study Group to fascinating look inside the markets of India and the daily excitement and challenges of leading such a rapidly growing firm. India's modern stock market is relatively young and has experienced several waves of expansion and contraction, usually triggered by a scandal and new regulations to correct. In the midst of this dynamic environment, Sharekhan continues to grow by excelling in customer service and providing superior information and trading tools for their clients.

~Adam Corkins