A Study on Competitive Structure in the Indian Securities Market
Authors:   Asia-Europe Perspective Association, Jung Moosup , Pyo Minchan , Lee Jieun 
Published: June 2018

The purpose of this study is to analyze the financial market environment and the key success factors for entering India securities market by investigating the cases of financial companies in India. There are 4 major regulations that could affect foreign securities firms entering India securities market, which are Depositories Act(enacted in 1996), SEBI Act(1992), Companies Act(1956), and Securities Contracts Act(1956). With the enactment of SEBI Act, SEBI(Securities and Exchange Board of India) was empowered,becoming a major institute of India securities market.
Securities companies in India consist of three types: India local firm, foreign firm, and joint venture between foreign and local firms. The three firms out of top five firms in India securities market are joint ventures, and the other two firms are India local firms. For example, the biggest securities company based on operating assets in 2011 was HDFC Asset Management Company, which was a joint venture between the British company(Standard Life Investment) and a India local company(Housing Development Finance Corporation). ICICI Prudential Asset Management Company was number three in the operating assets ranking in India securities market, which was also a joint venture between a Indian commercial bank(ICICI bank) and British firm(Prudential). Even in the joint venture, Indian local firms have much stronger decision power than foreign partners. The India securities market environment is so complex that foreign firms are not easy to successfully penetrate the market single-handed. For such a reason, there is noforeign firm listed in top five securities companies in India and there are only two foreign wholly-owned companies in top 20 securities firms.
One of characteristics in India securities market is that the leading companies have strong market power. For example, the total market share of top 5 securities companies is more than 50 percent, which is very high compared to the US securities market where the top 5 firms had only 38% market share in 2009. The total market share of top 10 companies in India securities market was close to 80 percent. In addition, the market dominating power of top 5 companies has an upward tendency. The total market share of top 5 securities companies was 51 percent in 2005, increasing to 58% in 2009.
This paper examines major securities companies in India such as HDFC and ICICI Prudential(joint ventures between foreign and local firms), Reliance Capital and UTI(India local firms), and Franklin Templeton(foreign firm). Franklin Templeton is the only foreign company listed in top 10 companies. Most financial companies with high performance are joint ventures between foreign and local firms and/or India local companies. On the contrary, foreign companies have been underperforming by lack of understanding the diverse needs of Indian investors. Even though Franklin Templeton is regarded as a foreign company, but it became a major securities company after taking over an Indian local securities company(Pioneer ITI) in 2003.
The findings of this paper suggest that it is proper for foreign financial companies to enter India securities market by setting up a joint venture with local firms rather than building up a wholly-owned company. The India security market has very complicated regulations and complex local investors and, hence, it is not easy for foreign firms to adjust itself to local business environment. A joint venture between a India local firm and a foreign firm could bypass the regulation applied only to foreign wholly-owned company. For example, there is a legal restriction that foreign investing firms cannot hold more than 24 percent of a local firm’s share. However, this restriction is not so for a joint venture between local and foreign firms.