In 1996, lured by the opportunities offered by the newly liberalising India, two finance professionals in their early thirties, Rashesh Shah and Venkat Ramaswamy, resigned from their comfortable jobs and borrowed $100,000 to co-found Edelweiss Capital Ltd (subsequently changed to Edelweiss Financial Services Ltd). Though India, which had embarked on a programme of deregulation and economic reforms in 1991, was an attractive market from the very start, the duo faced tough challenges. The initial idea was to start a merchant bank – as investment banks were then called by the regulator Securities and Exchange Board of India – and help take companies public. “But just before we were to commence operations, SEBI raised the minimum capital requirement for merchant banks to $500,000. There was just no way we could have raised this capital,” says Rashesh Shah, Chairman and CEO, Edelweiss Group.

Their initial business model in shambles, the duo innovated and concentrated on raising capital for a clutch of new-age companies from venture funds and private equity funds (since the minimum capital requirement didn’t apply to investment banks working on PE deals). In just a couple of years, Edelweiss had attained a leadership position in this niche area.

In 2001, the company entered the institutional equities business by taking over a struggling firm. Its success in the brokerage space has been at the heart of the group’s explosive growth. Today, Edelweiss is one of India’s most diversified financial services groups with businesses spanning credit, capital markets, asset management, life insurance and mortgages. The group today has a balance sheet size in excess of $2bn and employs over 2,800 people in 290 offices spread across India.

Driven by research
Even today, wholesale capital markets contribute over a third of the group’s revenues. In just over a decade, Edelweiss has emerged as India’s largest domestic institutional brokerage house, with a client coverage that spans across many countries. Asked to name the key factors behind this success, Vikas Khemani, President and Co-Head of Wholesale Capital Markets says: “This success is based on the three pillars of cutting-edge research, state-of-the-art technology, and wide corporate access.”

The quality and high calibre of Edelweiss’ research is held in high regard by the institutional investor community. “Research is in the very DNA of the organisation. Right from the time we entered the institutional equities business, we decided that the width and depth of our research will be one of our main calling cards,” says Shah – who, before founding Edelweiss, had interestingly headed the research team at another Indian brokerage.

Towards this end the group has continued to invest in building up its research team, irrespective of the market dynamics. Today Edelweiss has one of the largest research teams in India and its in-depth analysis and compelling insights presently cover more than 188 companies across 20 sectors, accounting for nearly 75 percent of the total market capitalisation in India. But as Nischal Maheshwari, Co-Head of Institutional Equities points out, the scope of Edelweiss’ research extends far beyond just covering stocks. “We have always believed that to help our clients make the right choices, it is as important to identify large macro-economic themes early and connect the dots to get a fix on the stocks that will benefit from these themes and trends.”

As an example of this kind of inductive thematic research that attempts to predict economy-wide trends, he points to a report the firm published last year on rural spending patterns. To gather data for this report, analysts from Edelweiss travelled over 7,000 kilometres across the length and breadth of India.

Mixing traditional with the new
Interestingly, Edelweiss was one of the first research houses in India to cover private markets and profile high growth sectors and companies in India. Edelweiss has helped clients develop an in-depth understanding of these areas by acutely examining industry dynamics and emerging trends, besides showcasing several exciting private companies from various sectors. As a result, on several occasions it has been able to identify and trace companies that offer immense potential in their early stage.

This macro-economic research is backed by one of the widest range of sector and stock specific research offerings in India. Edelweiss’ analyst team has over 500 years of collective industry experience and is well-rated and regarded by institutional clients. “We ably use quantitative screens and qualitative mechanisms to identify under-valued, high performing companies from emerging sectors which operate in areas where India has a clear edge over the rest of the world,” says Khemani.

As well as some of the more “traditional” research areas, Edelweiss has been one of the pioneers in alternative and quantitative research in India. “Our alternative investments and derivative desk combines capital markets intelligence, structured derivative products and economic/corporate developments to create insightful data points, leading to investment and arbitrage opportunities,” Maheshwari says.

Some of its research offerings in this area include: Reports focusing on opportunistic market timing induced by leveraged or synthetic positions, special situations and interest and volatility arbitrage. Maheshwari says that apart from some standard research products, Edelweiss also offers customised analysis specific to client’s investment styles, including screens for deep value, growth, momentum and income, turnaround investing styles, as well as system-based trading models for clients that are derived from rigorous back-testing.

Prime brokerage
According to Khemani, one of the group’s biggest strengths is that its consistent investment in technologies has given it a significant edge over all other Indian brokerage houses. Over the years, the firm has ploughed back substantial amounts into ensuring that its global clients enjoy the advantage of state-of-the-art trading technologies. It has invested in multiple trading platforms to seamlessly execute complex trades across the entire spectrum of trading strategies. Its ability to offer direct market access ensures that clients benefit from the slightest inefficiency in the markets.

Capitalising on its unique understanding of the Indian markets, Edelweiss is one of the first brokerage houses in India to develop proprietary trading algorithms, get them registered with the Indian regulators and offer clients trading platforms based on them.

Over the past few years, Edelweiss has been able to leverage its research skills, technology investments and market expertise, as well strong financials to build a robust prime brokerage business. “As with the institutional equities business, the idea is to ensure that clients – be they institutions, brokers, corporations or high-net-worth individuals – get a one-stop solution to the highest value,” says Khemani. Apart from its comprehensive range of research, sales and execution abilities, Edelweiss prime brokerage also offers its clients across the globe services like set-up advisory, clearing, custody, settlement compliance support and reporting, besides distribution of third-party products.

Corporate access
Another reason for Edelweiss’ success has been the growing popularity of its India Investor Conferences, which showcase high-growth Indian companies to investors around the world. Every year Edelweiss organises such conferences in New York, London, Hong Kong and Singapore, culminating in a flagship conference in Mumbai. These conferences have become a permanent fixture in the calendars of most global investors looking at investing in India. The fact that these conferences are attended by the who’s who of India’s economic policy makers and regulatory authorities, bear testimony to the value of the interactions that take place.

It is clear that Edelweiss’ strategy of investing in research, technology and expertise is working for its legion of satisfied clients. Donald DeVivo of Zesiger Capital, a US-based institutional investor sums it up best: “We’ve been investing globally and in emerging markets for more than 16 years. During that time we’ve invested in over 20 countries globally and in most cases have made use of local, as opposed to global, brokers.

“We generally try to build a strong relationship with one broker in particular who we believe provides the optimum combination of quality research, corporate access, and intelligent and thoughtful sales and trading support. After nearly a decade of investing in India, Edelweiss has been that broker. In our opinion they embody a unique combination of local expertise and understanding of global markets and global investment priorities.”