Stars may be aligning for ICICI brokerage IPO

Word out of Mumbai Monday has the bank's executives and investors mulling an initial public offering of its investment banking and brokerage arm in a move to capitalize that nation's growing economy and need for financial services.

There's plenty of competition in the brokerage business in India, with several foreign firms taking stakes in existing companies, but as the West's largest brokers continue to lick their subprime wounds, their ability to fund operations may be constrained.
That could provide further incentive and help sway a decision, by, in effect, giving ICICI a chance to grow its business while some major foreign competitors needed to husband their own capital at home.
ICICI shares rose about 40% in 2007, but those results lagged the government-run State Bank of India, whose share price grew about 90% over the same period.
Analysts who discussed the meeting earlier today in Mumbai with Reuters speculated that the bank and brokerage operations, if split, would unlock a lot of value.

With international investors looking for financial stocks, the ICICI offering would be compelling. The bank has already sold stakes of 10% each to two funds in Singapore, including the government-run Singapore Investment fund.
Adding to the appeal, and possible downside protection, analysts have predicted, correctly, that demand for financial services in India will grow at double-digit rates for the next several years.
And there's also demand for the stocks themselves. Traditionally, not many brokerages have been publicly traded in the country, but that's changing. According to reports over the last year, three brokerage firms went public in India in 2007, bringing the total of traded firms to 47.
How right might the time be then for ICICI to IPO the brokerage unit? Well, India's market bucked the global trend on Monday, rising to its third record since the new year began, driven by a more than 6% gain in ICICI.