Investor Issues
Private equity firms and broken-down model of broking firms – I

For private equity firms trying to make a quick buck from their investments in stock broking firms, the horror show seems endless. The first of a three-part series

On Wednesday, Geojit BNP Paribas Financial Services reported an 8% decline in revenue and 65% crash in net profit, for the quarter ended March 2011, over the corresponding previous quarter. Other broking companies haven't reported results so far, but nobody is expecting them to do wonders. What does this mean for a set of private equity firms, which lemming-like, had been clamouring for a piece of the business of stock broking firm in 2007? Very simply, the horror show continues.

Look at the stock performance of these companies from their lifetime highs of 2008. Emkay Global Financial has crashed by 84%, Edelweiss Capital has collapsed by 78%, India Infoline has fallen by 80%, Indiabulls Securities is down by 87%, JM Financial by 84%, Motilal Oswal Securities by 70% and Networth Stock Broking has slumped by 77%. Over this period, the Sensex is down by only about 5%.

This is not what the smart private equity investors who had jumped into the broking companies were hoping for. It was the pre-crisis period of 2007-08, when PE firms were investing in well-established broking companies which were on the path of huge expansion. The idea of course was to offload them within a couple of years to an eager public. What could be easier? After all, they have played the game many times before. Citigroup Venture Capital bought an 85% stake in Sharekhan, India Capital Growth Fund and Caledonia Investments took a stake in Rajkot-based Marwadi Shares, Barings bought a 45% stake in JRG Securities, Gaja Capital a stake in Bonanza and IFC Washington a stake in Angel, among others.

But their timing couldn't have been worse. Within a few months of their investment, financial turmoil rocked the world, deep crises hitting Western economies particularly hard. Brokerage income collapsed. And even though the overall market revived and real businesses are doing well, private equity firms find that they are still badly stuck with their investments in Indian broking firms. So, what went wrong?

In 2007, when the private equity players rushed into unlisted broking companies, they expected a continuation of the long bull market that started in 2003. This would mean robust market volumes and increasing brokerage income. It turned out to be quite different. When the Sensex was at 20,000, in December 2007, there was some optimism among a section of retail investors. Mutual funds were drawing net positive inflows from individual investors.

The mood this time is one of caution, with individual investors busy reducing their stock portfolios and redeeming their fund investments. There are specific reasons why broking income has collapsed now, some of which would have been clear even in 2007, but nobody wanted to see. And so, in 2007, at the height of the euphoria, the assumptions used to project income and profits were deeply flawed.

In the situation they find themselves in, how would private equity players recover their investment or even make an exit from their investments? The investment attractiveness of stockbroking firms has turned out to be a trap. The PE firms have no easy exits. Public issues of broking firms are unthinkable and there are no buyers of their stakes. Scope for 'consolidation' is low for fundamental reasons.

The point is, is this likely to change? When will things change for broking firms and how? Can things really improve for the big brokers, who have expanded with PE money, and are saddled with an inherently-flawed business model? That is what we will highlight in the second part of this series when we discuss the model of broking firms.

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6 years ago

Good article, looking forward to the Series 2. My investments are also stuck in one of the broking firms and it is ~50% down from my invested levels. I do not see any recovery in the near future, only consolidation can help these firms come out.

Uppai Mappla

6 years ago

I think the article analyses the past correctly. Lack of retail participation in the stock market was a worldwide phenomenon, not just in India. There is a strong possibility that the retail participation will return. Retail investors typical buy stocks for delivery. Unless there is another recession coming, brokerages (especially the "smart" tech savvy ones) will have increased business. And unlike the previous retail bull runs,this one will be spearheaded by youngsters through social media. I recommend Geojit, Indiabulls Securities etc. as having bottomed out and poised to rise.

Srinivasareddy M

6 years ago

Well said about the industry and growth pattern.

Amol Erande

6 years ago

The broking industry seems to have gone to the dogs.Its payback time for many of these broking firms. They are reaping what they have sowed: the humongous wealth destruction of the clients portfolios!!. In their blind greed for revenues and bonuses supported by a flawed business model, the term "client Interest" was and still is pretty much forgotten. It is high time these exceptionally intelligent top managements come to their senses and take a more rational approach.

Nitin B

6 years ago

This is a very thoughtful article at the right time before further damage can be done.
The greed to create huge volumes ( for brokerage earning-the mainstay of the business).
The Cos are not holding on to the existing clients with better plans
spending more money on chasing new
and more.
There is always a remedy available before it is too late if rational approach is implemented.
.PE firms can also recover their investments.

suresh sharma

6 years ago

Your commentary seems to be exclusive
bec either Others dont know as well as yu do or are hesitant to speak the truth
Or, the PE Players have been unethical in driving their Products by Greed and not
be the "creative Investors " as they 'should"
suresh sharma


6 years ago

With the brokerage levels plummeting to 0.15% to .25% for retail customers and around .10% to .125% for institutional trades there is no way the stock broking companies will earn money. The cost of labour has gone up so have other expenes


H Trivedi

In Reply to S.P.Dhanapal 6 years ago

Brokerage shrikange is not the reason behind fall of the broking firm. But their unethical mal practices are. To earn revenue They used short term means. And never thinked of the long term repocations of their doings.

Vinay Joshi

6 years ago

This is a red signal for gullible investors to stay away from such broking firms, to avoid unfounded tips, penny stocks or stocks w/o cash balances, in short herd mentality.
Always have your transactions dr/cr to your demat a/c only.

Better option should be to invest in IPO's but with ASBA a/c.

Never ever give Power of Attorney to broker/trader, illegal it is.


Techie fights cheating by travel website through ‘RuinedMyTrip’ blog

Mangalore-based Vishal Rao creates ‘RuinedMyTrip’, which appears in the top search results for ‘MakeMyTrip’ on Google, to avenge cheating by the travel portal

Feeling cheated by a company, either because of unfair treatment or poor services, many of us would usually end up staying silent. Yes, in the head of the moment, we'd get angry and some of us may even vent the anger on the company's staff. Still fewer would choose to take legal recourse through the consumer court, where the battle could be long. But here's an example of a person who chose to use his skills with the Internet to fight against injustice.

Mangalore-based Vishal Rao was cheated by the online travel agency MakeMyTrip. He had decided to spend Christmas 2010 along with his family in Mysore. So he made the bookings through the online agency well in advance. Imagine his surprise when he was denied accommodation at any hotel in the tourist city.

MakeMyTrip had accepted the necessary payments and even sent him an e-mail confirming the booking, but he found that the agency had not made the hotel reservation. "In fact, in the confirmation voucher which was sent through e-mail, apart from the check-in date and time, it was also stated that 'your booking is confirmed and you are not required to contact the hotel or MakeMyTrip to reconfirm the same'," Mr Rao says.

Aggrieved by this treatment, Mr Rao created a blog, 'Ruined My Trip', to make people aware about his experience and the unfair business practice by the company.

There are hundreds of such blogs highlighting consumer complaints on the Net and most of them are hardly noticed, barely receiving a comment or two. Unfortunately for MakeMyTrip, the blog 'Ruined My Trip' turned out to be different.

Being, an expert in the web business, Mr Rao used his skills in the search engine optimization (SEO) area to push his blog into the top ten Google search results for 'Make My Trip'!

"I could (have) filed a case in court against and this could have taken years, or write a review on the net. I checked and was surprised to see that there were hundreds of others with similar experiences. But this made no difference to them (the company), simply because the reviews were not showing up in the results when searching directly for 'Make My Trip' or ''," he says.

"I decided to create a dedicated web site documenting my experience and allowing others to share theirs too. I used my SEO experience to make this website (to) show up in the top ten Google results when people searched for 'Make My Trip' or ''. So nobody will have to go through the horrifying ordeal I have gone through. This was far more satisfying for me than filing a court case against them."

Mr Rao warns the offending companies: "Don't take your customers for a ride. You never know when one of them will turn out to be smarter than you."

Talking about his Mysore experience, Mr Rao said that when he inquired why no hotel room was booked for him, he found out that MakeMyTrip staff called the manager of the hotel only at noon on the day he was to check in. "I (had) booked the rooms on 15th December and they called the hotel on the day I was to check in, to confirm the booking."

Mr Rao managed to get rooms at another hotel and enjoyed the holiday with his family. A few days later, the company wrote saying, "We are really sorry and you'll get a refund within seven days".

"They ( have a full-time SEO team to make sure that none of the negative reviews crop up in the top ten results. As you can see, almost all the sites in the top ten results are their own sites, which easily distract people," Mr Rao explained. MakeMyTrip even offered him a gift voucher of Rs10,000, which Mr Rao refused.

Blaming system error for non-booking at the hotel in time for Mr Rao, MakeMyTrip, in an email said,"The customer in question had booked a hotel on our portal. However, the online booking could not get confirmed due to a system error. As a process of reconfirmation, we contacted the hotel on the day of check-in, but the hotel was sold out. Our team tried to reach out to the customer but unfortunately could not connect with him. We did connect with the customer later on and offered a full refund on the booking; we deeply regret the inconvenience caused. Upon checking the customer's blog, we reconnected with him and relooked at all details on our end. The case was further analyzed by higher authorities and as a gesture we offered the customer a MakeMyTrip voucher."

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Rohan singh

6 years ago

Great effort by moneylife to expose Makemytrip. Unfortunately most of the reviews of mamemytrip r not positiv on web n even As mr Rao pointed that always companies which cheat have in-house seo team that tries to bury the negative results in google. Maybe should beat the seo efforts so that the negative reviews come on top.
Disclaimer; I posted a negative review of one airline on Mouthshut. They offered me a voucher if I removed the review. I took the voucher but didn't remove review. I just updated it.



In Reply to Rohan singh 6 years ago

Accepting the voucher, on the understanding that you will remove the review, and then not removing it. IS THIS NOT CHEATING ? If you take compensation (in the form of voucher) against your complaint of cheating, then it is your moral right to remove this negative review.


6 years ago

Dear Editor, Writer, Moderator and concerned persons at Moneylife.

Can we, readers, expect a clean environment in the comments ? Of late there have been some comments which use foul and abusive language such as the one in response to this article itself. This has been noticed in the comments to other article too. Though you have provided 'report abuse', it seems it is not working or you are ignoring it. I had used this to draw your attention earlier but it did not remove the offending comment. Here too I have used it and I look forward to your appropriate action. Though people should be welcome to comment and vent their anger which may be justified due to whatever injustice they may have faced, it is not right to express it in an abusive form on a forum such as this. Let us not pollute a great and a bold effort carried out by Moneylife.

I once again request Moneylife team to be on the guard and do the needful for such misuse of the powerful tool that you provide to post comments to an article.

Ashok Swamy

6 years ago

I also had a very bad experience from Zap Booking.This company beats any other travel site in cheating and callous service. I paid for my Kerala, 9 days holiday and paid in November for my holiday in February.I received all hotel vouchers from this outfit confirming accomodation.What followed was pathetic.I had no hotel reservation at Tea County in Munnar, I had no reservation at Alleppy in the boat, I had no reservation at Samudra at Kovalam.At every of above location I had to spend hours calling them at Delhi and they trying last minute reservation. I warn every one never to deal with Zap Booking but also to be aware and never accept Hotel Vouchers from Travel Booking entity and insist on Hotels directly giving vouchers.I had a very good experince during our tour of Sikkim and Darjeeling wherein my travel booking site aranged vouchers from Hotels directly. I wonder if there is any control or remedy over cheating travel Booking companies like Zap Booking.


6 years ago

Dude.... Tussi Gr8 Ho....a couple of years ago...i had booked flight tickets via my credit card...they charged me twice and it took me over a month and umpteen e-mails to get my money back from thease arseholes
Before booking...goto Refund Option on their phone number and find out how long they keep you on hold
The novel way you have done is great.... Kudos to you


6 years ago

Regarding MMT's response:

"However, the online booking could not get confirmed due to a system error."

The online system only sends a confirmation voucher to the hotel. The payment does not happen automatically. This is negligence and not system error.

"Our team tried to reach out to the customer but unfortunately could not connect with him."

I did receive calls from MMT only on the day of my travel and as I was traveling there was communication problem and couldn't get what they were trying to say to me. I repeat, on the day of the travel. So please don't try to disguise your negligence by telling you tried to reach out to me and couldn't connect.


6 years ago

Thanks for sharing this and bringing it to readers. I was almost going to book my family (incl. senior citizen and child) trip with MakeMyTrip in June 2008 and luckily I did not.

Such articles enlighten readers and caution them against fraudulent or irresponsible vendors.



In Reply to Prakash 6 years ago

thats a silly way to make up your mind.most companies will falter in some way or the other during their lifetime.i had good experiences with makemytip -even on trips abroad.its godd that vishal took them to task. that doesnt mean that makemytrip is a fraudulent just means that its customer service is average.
if every case of customer outrage caused a company to shut down,we would be in permanent lockdown on planet earth.
unless it can be proven to be a systematic abuse,it cannot be fraud.remember hanlon's razor? dont attribute to malice that which can be attributed to stupidity


6 years ago

Thanks Vishal Rao for smartly calling the bluff and Moneylife for bringing it to us.We,lesser mortals with no knowledge of SEO etc. can only look upto souls like Vishal for exposing the misdeeds of companies with no scruples.

Ankur Agrawal

6 years ago

Very informative. Thnx for sharing

Mumbai Angels invests in ZipDial

Bangalore-based ZipDial receives Series A investment of over $800,000 from both Indian and US angel investors, led by Mumbai Angels, an angel investing group

ZipDial receives Series A investment of over $800,000 from both Indian and US angel investors, led by Mumbai Angels, an angel investing group.

ZipDial Mobile Solutions Pvt Ltd is a Bangalore-based company founded by Valerie Rozycki (CEO) and Amiya Pathak (COO), technology entrepreneurs with degrees from top global universities and graduate schools such as IIT-Kanpur, IIM-Calcutta and Stanford University as well as extensive professional leadership experience in both India and the US, including companies like mChek,, eBay, and Ketera.

Anil Joshi, head Mumbai Angels, who lead the deal, said that Mumbai Angels decision to invest in ZipDial was simple. "We believe that ZipDial with their patent-pending technology and strong team would leverage mobile platform to deliver host of services to customers across industry." He informed that Sunil K Goyal, founding partner, YourNest Angel Fund and Shravan Shroff, Founder, Fame India Ltd have joined Business Review and Investment Committee (BRIC) of ZipDial to represent the investors from Mumbai Angels Group.

Sunil K Goyal explained that the Mumbai Angels Group is extremely impressed with ZipDial offering of a mass market tool for market research, and customer feedback. A brand or a customer service organisation can get real time response and analysis from their customer, with them using free service of ZipDial. ZipDial's patent-pending missed call concept offers varied services like polling, generating sales lead, and so on. According to him such an approach is unique and would certainly bring customers closure to their brands using high penetration of telecom services.

Mr Shroff explained that investors from the Mumbai Angels Group viewed ZipDial as a high quality early stage company with potential for sustainable scalability and profitable growth. He added that group was delighted by the business progress achieved till date.

"We are delighted to have Mumbai Angels as an integral part of ZipDial now," said Ms Rozycki. "We plan to make ZipDial yet another success story from their portfolio, helping to inspire even more entrepreneurship and innovation in the Indian market."


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