How the West was won

Implications: 1.Boom in the capital markets attracting international firms. 2.Markets being driven by the neo-rich.

Analysis:  India’s capital markets is witnessing a phenomenal growth. Many mega issues such as DLF, SBI,ICICI have been oversubscribed including the domestic brokerage firm Motilal Oswal Securities. Optimism in the markets has prompted a wave of foreign investment in the domestic brokerages. India’s economy is growing at 8-9 per cent and corporate earnings are growing at 20-25 per cent. India’s total market capitalisation reached USD 1000 billion earlier this year, for the first time equalling in size the country’s gross domestic product. A study by Citi Global India has found that “ The country has been experiencing unabated wealth creation amid consistently strong economic growth and is expected to be Asia’s second-largest wealth management market by 2010.” Considering the backdrop, Morgan Stanley (MS) took a belated decision to obtain a merchant banking licence. Morgan Stanley entered the Indian market way back in 1993 during the initial euphoria of the economic reforms. It clicked straightaway with a public issue of its fund, which was heavily oversubscribed. It had stayed on and has since become a major player in the Indian stock markets. It had the goodwill and was well known even before it stepped into the Indian shores. That it took so long to obtain a licence is surprising as well as perplexing.

Perhaps, the current rapid economic growth, rising wealth levels, high savings rate and still relatively untapped market - which has made India the hottest market in the world, has convinced MS to finally take up permanent residence. There could be another reason as well. India is going to review foreign ownership limits in 2009. And many international firms are establishing base in time for the changes which may turn out to be favourable.

In a move that reflects the importance of the Indian stock market on the world stage, last year the New York Stock Exchange bought 5 per cent of India’s National Stock Exchange for USD 115 million. Similarly, Bombay Stock Exchange had also attracted foreign bourses for a stake.

Attracted by the tremendous potential and phenomenal growth achieved by Indian retail brokerage firms in recent times many international majors are mulling an entry into the stock market. Indian brokerage industry has been consolidating steadily over the last 10 years. There has been a substantial volume growth in business while simultaneously there exists a huge scope for more consolidation.

The competition is intense but the market is expanding at an even faster pace. And Morgan Stanley with a deep understanding of the Indian capital market will be able to rapidly expand its services and capture a major chunk of the market.

Establishment of a base by Morgan Stanley also illustrates the fact that the Indian market has matured and has the potential to turn into a economic powerhouse. A move that portends the west has been won.