Kotak gets a KFin boost

Kotak gets a KFin boost

on Monday, despite rumblings in the broader market, the Kotak Mahindra Bank stock bounced to an intra-day high of ₹2024/share. this is just about 1% lower than its lifetime high of ₹2048/share from February this year. back then, it was forced into a retreat by the second wave of the pandemic. but this time, its prospects of climbing to further heights appear much better.

its acquisition of a 9.98% stake in KFin technologies for ₹310 crore is part of the reason why.

what does KFin bring to the table?

in one word, data. KFin is the largest of only two Registrar and Transfer Agents (RTA) in India at present, with 25 out of 44 Indian mutual fund asset management companies as its clients. an RTA provides technology services such as maintaining detailed records of the transactions carried out by the investors. this means that despite any number of platforms offering services to investors, the information ultimately flows through the RTA.

as of April 2020, KFin served over 90 million individual investor accounts spread across 1,300 issuers including banks and PSUs. it is also one of India’s main IPO processing companies and has nearly tripled its turnover from ₹162 crore in FY19 to  ₹480 crore in FY21. it is also diversifying its business, for example, with the acquisition of a 17% stake in insurtech startup Artivatic.ai.

can Kotak capitalise?

now let’s look at Kotak Mahindra Bank. on Monday, its market capitalisation briefly touched ₹4 lakh crore. it’s the third-largest private bank in India by that metric behind HDFC (₹8.6 lakh crore) and ICICI (₹ 5 lakh crore). with a turnover of ₹26,840 crore in FY21, it’s unlikely to look at KFin through that lens. it will, however, look to KFin for access to its massive userbase and perhaps data. Kotak’s own asset management company has just over 2 million investors, a fraction (~2.2%) of KFin’s reach, and has been under regulatory scrutiny of late.

another factor that could work for the bank in the market is the fact that the overall category may be due for a rally. the banking sector has underperformed the market over the past three months, but technical market factors and the prospect of an interest rate hike on the horizon suggest they might soon break out.

while GA is said to be keen on further reducing its holding in KFin, thanks to past incidents when the firm was known as Karvy Fintech, Kotak may have pocketed itself a nifty little deal.