Remember the famous “5 paisa.com” from India Infoline? After changing the face of on-line trading in India by offering the lowest brokerage rates, the company intends to become a full-fledged financial products and services company. The company is aggressively expanding its branch network and venturing into new areas like investment banking, distribution of life insurance and loans.

Moreover, it intends to reduced its dependence on the volatile equity broking business, which formed about 56 per cent of total revenues in FY07 as compared to 66 per cent in FY06. In FY07, the company reported strong financial performance with sales jumping 95 per cent year-on-year (y-o-y) to Rs 416 crore and net profit rising 54 per cent to Rs 75.6 crore.

The stock has more than doubled in the past one year and has shot up by more than 50 per cent in the last six months. It trades at an attractive valuation of 16 times and 10 times its estimated earnings for FY08 and FY09 respectively. Nirmal Jain, managing director, India Infoline shares the future business prospects and view on the markets with Priya Kansara. Excerpts:

Will the robust financial performance recorded in the past, especially in FY07, continue?

FY07 has seen phenomenal growth in terms of branch expansion. We have 560 branches in 330 cities and towns across the country, as compared to 175 branches last year. The new branches set up during the year, although 70 per cent in number, have contributed just about 25 per cent of the business. We expect them to be fully productive during FY2007-08.

Do you own these branches or have a franchisee kind of model? How does the rise in property prices and rentals impact you?

Over the years we have consciously developed the branch model and not focused much on growing the franchisee route. Our branches are typically leased or rented. We believe that the real estate market has seen a slight cooling off in the very recent past and rentals in Bombay have actually witnessed a slight reduction.

The company’s margins are depressed for the past couple of quarters due to the higher operating expenses on account of expansion of branches and employees? When will things stabilize?

A major part of the expansion was done in the middle of last financial year. Therefore, our operating margin, which was historically 40 per cent till FY06, has fallen to about 30 per cent in FY07. New branches take about 12 to 18 months to break even and mature after which we expect the margins to bounce back to the historical level. However, margin expansion will be gradual.

Also the life insurance business is seasonal and a significant part of this business is done in the last quarter of the financial year whereas the cost incurred is spread out evenly through the year. Therefore we believe that margins will gradually improve in the first two-three quarters, and we will have a more robust improvement in the last quarter.

What is the expected revenue mix this year and how would you like it to shape up two years down the line?

Even as our equity broking business is expected to grow, contribution from our insurance, investment banking and personal loans products is expected to increase significantly. Thus, the contribution of equity broking to total revenues is gradually expected to be brought down to 40 per cent in the next three years while the share of non-equity products will rise to 60 per cent. Thus we intend to progressively reduce the company’s exposure to equity movements.

How is the competitive scenario in your existing businesses?

In all our businesses, the competitive scenario is becoming fierce and intense. However, all the relevant markets are growing at a rapid pace and they can absorb new players. Also, I believe that all the businesses have a long learning curve. New players, regardless of size and capital backing, will take time to get a critical mass of customers and markets.

How does the company position itself in equity broking, especially with the entry of big players like Reliance Money?

We offer a single-point availability of a broad basket of financial products strengthened by robust technology and updated research in the most efficient manner. This concept of service comprises an understanding of what customers need and we invest proactively in resources to provide them.

What are the company’s plans for new businesses like investment banking and distribution of loans and mortgages?

India Infoline provides corporate finance advisory services to small and medium enterprises (SMEs) in the areas of mergers & acquisitions, private equity placements, IPOs and high yield debt. The segment is synergetic with the company’s broking business. While leading investment banks target large companies, we focus on SMEs.

For distribution of loans and mortgages, our focus is on the smaller towns and cities where availability of credit is still low. We will distribute personal loan products by leveraging our pan-national infrastructure prudently.

In the current high interest rate scenario, what is your outlook on personal loans and mortgages?

Debt-based consumption in India is increasing driving demand for personal loans. A lot of people especially from the middle-class segment are going for personal loans, which has seen a 30 per cent growth in the past two years.

What is your view on the market?

The present rally is riding on the back of FII inflows, good corporate performance and improving domestic liquidity. We expect the Sensex to move to 15500 range in the medium term. On a long term basis, investors can expect 18-20 per cent from the market over the next three to five years.

Which sectors do you think have the potential to outperform?

Sectors like information technology (IT), power and power equipment, telecom and construction should outperform. Though rupee appreciation is a cause of concern for IT companies, 25-30 per cent growth in earnings is visible for next couple of years. Acute shortage of power and huge investments during the 11th plan are triggers for the power and power related sector. High growth in subscriber base could boost telecom scrips and order book to sales ratio of 3-5x would be a big trigger for construction companies.

Which sectors are you cautious about and why?

We are cautious about sectors like auto, non ferrous metals, cement, textiles and real estate. the auto sector is avoidable as interest rates are high and vehicle sales are slowing down. Non-ferrous metals are at the peak of their cycle and high inventory levels would affect prices. The 25-30 per cent capacity addition in cement over the next 2-3 years will put a cap on the pricing power of cement companies.

Besides, interest rate sensitive sectors and real estate companies that are highly leveraged will be affected severely by even a small correction of 10-15 per cent in real estate prices as this will affect operating margin of developers in a significant manner. Excess capacity and rupee appreciation is affecting export realization of most of the textile companies.

Can you tell us your top picks?

Infosys, TCS, HCL Tech, BHEL, Voltamp, Indo-tech Transformers, Kalpataru Power, Bharti Airtel, L&T, Punj Loyd look good for the long term.

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India has been chosen for the launch of the world’s first qualification for financial services IT staff working in operations.

The IT in Investment Operations Award (ITIO) has been developed by the Securities and amp; Investment Institute (SII), which has an office in Mumbai, with input from leading banks, third party administrators and IT service providers.

The ITIO Award has been developed in response to industry requests for a practical and relevant qualification for IT practitioners working in the financial services sector. The ITIO Award can be taken as a stand-alone qualification or as part of the SII’s broader Investment Administration Qualification (IAQ).

The SII ITIO Award was launched Wednesday by the Lord Mayor of the City of London Alderman John Stuttard and Richard Stockdale, President of SII’s Regional Committee in India and CEO of Lloyds TSB Global Services Private Limited.

Nearly half of the ITIO examination is devoted to the role of IT in the advisory, middle and operations divisions, with a further 25 per cent devoted to IT management and delivery issues.

‘It is the fist time that SII has launched a new global qualification outside the UK and we are delighted to do so in India,’ Ruth Martin, managing director of SII said.

‘The ITIO aims to explain issues that IT staff may expect to face in their day-to-day activities and will become the benchmark qualification for IT staff working in, or hoping to move into, the global financial services sector.’

The SII ITIO will be offered globally by Computer Based Testing (CBT) from September 2007 and SII will be working with local training providers.

Some of India’s most senior financial services industry practitioners have joined the SII India Regional Committee, which is chaired by Stockdale.

The Committee members are: Richard Stockdale, CEO, Lloyds TSB Global Services Private Limited and President, SII India Regional Committee; Prakash G. Apte, Director, Indian Institute of Management Bangalore; S A Narayan, MD, Kotak Securities Limited; P H Ravikumar, MD and CEO, National Commodity and Derivatives Exchange Limited; Sheena Wilson,- CEO, Mellon India Private Limited; Natarajan Radhakrishnan, Practice Director, Cognizant Technology Solutions India; Ashu Suyash, MD, Fidelity Fund Management; Deena Mehta, MD, Asit C Mehta Interrmediates; Sunil Shah, MD, HDFC Securities Limited; and Nitin Rakesh, CEO, Syntel Sourcing.

The Securities and amp; Investment Institute (www.sii.org.uk) was formed in 1992 by members of the London Stock Exchange to help set standards of professional excellence and integrity for the securities and investment industry, provide qualifications and promote the highest level of competence to its members, firms and others.

Over 30,000 members benefit from a programme of professional training and development. The Institute is the principal awarding body for industry qualifications and last year its examinations attracted 38,000 candidates.

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In April 2005, former employees of a Pune-based BPO firm duped US citizens of around Rs 1.5 crore from their Citibank account.

In June 2005, the tabloid Sun, in a sting operation purchased the bank account details of 1,000 Britons for about $5.50 each from an employee of Gurgaon-based BPO company.

In June 2006, a Bangalore-based BPO employee sold the credit card information of UK-based customers to a group of scamsters, who used the information to siphon off nearly Rs 1.8 crore from their bank accounts.

Today, after more than two years, these frauds and scamsters continue to operate and it is the IT hubs of the country—Bangalore, Pune and Gurgaon—that are slowly taking on the notoriety of being the cyber crime centres of the country. The only difference: Change in modus operandi.

If earlier it was the BPO employees who facilitated these frauds, now it is through the internet that these crimes are committed. Take for instance the case of Rahul. This Bangalore-based techie received an ‘official’ email from the private bank where he had a salary account requesting him to verify his login details as part of a server upgrade. “You must renew the services or it will be deactivated and deleted,” the mail said.

Rahul promptly filled in his bank account details including the PIN number and address. The next day, he found Rs 2 lakh missing from his account. From his bank, he found out that the money had been transferred to another account in Kolkata. The email, URL and even the bank’s web page were all found to be bogus.

Rahul’s is not the only case of a cyber criminal duping people of their money. Another person from Bangalore was duped of Rs 15,000 through similar means. Both the cases that happened early this month are under investigation.

In fact, Bangalore’s cyber crime station, the first one to be set up in India during 2001, has so far received close to 553 enquires, with the maximum number being received during the past two years. There were 111 criminal cases registered between 2001 and 2006.

Additional director-general of police S Mahapatra, who also heads the cyber crime cell, admits that cases of internet bank fraud and password hacking are on the rise in the Silicon Valley of India. “The most difficult part about bank frauds is that the criminals could be sitting across national boundaries,” he says.

Besides bank fraud, emerging cyber crimes include ID thefts, data thefts, credit card manipulation and stealing confidential information from companies.

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Barclays PLC, a major global financial services provider, today announces the launch of retail banking services in India with a new range of credit cards, personal loans, business instalment loans and investment services products. The new products will redefine retail banking in India, giving customers a greater degree of control over their finances, allowing them to tailor the product offering to meet their individual circumstances.

Barclays has a clearly stated aim of increasing the proportion of profit generated from outside the UK and of increasing its exposure to attractive emerging markets. India has a high-potential and fast growing retail financial services sector with retail banking set to grow at a compound rate of at least 30 per cent a year, making it an exciting market for Barclays.

Barclays aims to be among India’s fastest growing banks and to be amongst the top foreign banks in terms of incremental business within the next three years. As a first step in achieving this goal, the bank is launching its retail services in Mumbai, Kanchipuram, and Nelamangala, near Bangalore.

The bank will look to expand its geographical network over time while also utilising internet, telecommunications and technology such as ATMs. The retail network will be supported by direct sales agents, increasing customer reach significantly, and Barclays has sought approval to open more branches in India.

Samir Bhatia, managing director, Barclays India and the Indian Ocean, says; “India is one of the world’s most exciting markets for retail financial services. The country offers significant potential across customer and market segments which Barclays is well placed to maximise. We are developing products for the very affluent, the mass affluent, and the aspirational customer across market segments.”

The new products will take the lead in the Indian market through their simple and straightforward structure, putting customers in control of their finances. The credit cards will be from the Barclaycard stable, which is our market-leading global credit card brand. Our cards will be simple, flexible, clearly explained, with an easy to understand approach, all of which will put the customers in control of their credit. The three new Barclaycards available from this week are:

Barclaycard Gold– The only Gold card that lets customers choose how it works with all the things they need and none of the things they don’t. The customer has the choice of setting the billing date, minimum amount due and the credit limit to be allocated.

Barclaycard Smart Budget– The card with no nasty surprises – which lets customers decide how much they can afford each month and only pay that amount, regardless of how much they spend .

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Gap insurance (which isn’t technically insurance, but more of a debt cancellation agreement) protects you if your car is stolen or totaled while the balance of your car loan is less than the value of your car. For example, if you purchase a $20,000 car with no money down, your car might depreciate in value to $15,000 as soon as you drive it off the lot.

So what happens if you’re driving along in your brand new car, having a good old time blaring your new sound system, when you make one wrong turn and *SPLASH*, you find yourself in 15 feet of water with your car rapidly filling up with water. Well, you either can try to break the window if you have a window-breaking tool nearby, or else you’ll have to calmly wait until your car is completely submerged and then you can open the door and swim to safety.

Great, you’re still alive, but your new car is sitting on the bottom of a river, and you still owe a lot of money on it. Your insurance is only going to pay you the $15,000 that your car is worth, so you’re screwed out of the $5,000 gap between the car’s value and what you still owe on it. Well, unless you have gap insurance.

Gap insurance will do just what it sounds like - it will cover the difference between what you owe your lender and what your insurance company pays you if your car is totaled. It’s usually just a one-time charge of a few hundred dollars, and it’s definitely recommended if you buy a car with little or no money down, have an extended-term loan, or if you’re purchasing a car with a very high rate of depreciation.

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Calcutta : The National Insurance Company hopes to make a profit in 2006-07 against a loss of Rs 59 crore in 2005-06.

The last three months of the fiscal have been especially good with business rising 17 per cent on a year-on-year basis. Premium rates for motor insurance were deregulated from January this year and this has benefited the company. The company has also scaled down its motor insurance business to cut its losses.

“We have managed to scale down our motor insurance business to 50 per cent of aggregate premium income of Rs 3,800 crore in 2006-07,” said chairman and managing director V. Ramaswamy

“The company clocked a total premium of Rs 3,520 crore in 2005-06. But 60 per cent of our portfolio that year was motor insurance. Because of the huge motor insurance portfolio, particularly in the commercial vehicle segment, and third party claims thereon, we suffered a net loss of Rs 59 crore. But we expect to post a profit in 2006-07,” he said.

Ramaswamy, however, could not give the profit figure for the reporting financial year as the accounts are yet to be finalised.

The freedom to set their own premium rates in motor insurance also helped the company. The tariff advisory committee of the IRDA will no longer regulate rates for motor, fire and engineering and insurers can fix their own rates with a prior approval from the regulator.

However, in motor insurance, insurers have only partial freedom and can fix rates only for the ‘own damaged’ portion of the risk premium, while the premium for third party liability still remains administered.

“However, the introduction of the risk pooling mechanism will help us and other public sector insurers overcome the losses suffered from third party claims. Therefore, we don’t need to reduce our motor insurance portfolio further,” Ramaswamy said.

Under the risk pooling system, all premia paid towards motor insurance policies (commercial vehicle), irrespective of which insurer has underwritten it, will accrue to a common pool and payments to all third party claims will be met from this. In other words, the losses of third party liability in motor insurance are shared equally by all insurers.

Before the detariffed regime, private insurers would not offer third party cover to second hand and old commercial vehicles. But since third party coverage is a must for commercial vehicles, public sector insurers had to provide the cover and pay for the losses arising out of such claims.

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