Parsoli shuts broking unit to cut costs, to shift to advisory business

MUMBAI: Caught in a web of legal wrangles and business losses, listed NBFC-cum-broking firm Parsoli Corporation, has decided to shut its core stock broking business.

The company will, from now on, confine to investment advisory, Zafar Sareshwala, managing director of Parsoli Corporation, told ET.

“It’s difficult to work in such rigid regulatory environment… Also, it’s not worth the while to do broking anymore. We’d earn more money if we just withdrew all our guarantee money, margins and security deposits and put them in bank fixed deposits,” said Sareshwala, managing director of Parsoli Corporation, which got listed on the BSE in 1995.

Besides broking, Parsoli specialised in Shariah-based investment advisory business. Over 39% of Parsoli shares are held by the Sareshwala family, as on June 2011. Germany’s Baader Wertpapierhandersbank, Gulf Investment Services and Oman Commercial Services top the list of non-promoter shareholders – with 24.8%, 19.2% and 4.9%, respectively, – in Parsoli Corporation. Retail investors hold over 7%. The company suffered a loss of 88 lakh in Q2 on a turnover of 36 lakh.

“There’s nothing left in broking anymore… Turnover has been a big problem for most brokers; No one is making money doing broking these days as commissions have gone below floor-levels. Shutting our broking vertical is more of a business decision,” Sareshwala said.

Parsoli intends to cut costs by shutting its broking business. It will continue to function as an Islamic investment advisory business. The decision was taken in consultation with major shareholders of the company, Sareshwala said.

“We’ll be saving huge costs by shutting our broking business. We’ve got mandates to advise a few Islamic banks on investments in Indian companies. We’ve shut broking to be away from any regulatory system,” Sareshwala said.

But besides a dismal market, the company’s latest decision may be attributed to its brush with the capital market regulator, Sebi. In 2008, Sebi auditors unearthed instances of fraudulent transfer of shares and price manipulation. In June 2010, it restrained Parsoli from dealing in shares and acting as a broker.

The charge against the broking firm was that Parsoli promoters had transferred 9.61 lakh shares held by them to unrelated persons. This corporate action and the resultant change in shareholding pattern were not disclosed to the BSE. Another charge against Parsoli, according to Sebi judgment, is its failure to report an earlier dividend announcement.

“This transfer of shares happened in 2005; but the Sebi booked us first in 2008. In fact, there was no investor complaint against us with regards to the transfer of shares. We had paid investors the damage (money) when we spotted the mistake in transfer of shares,” Sareshwala said.

Parsoli Corporation and main promoters Zafar and Uves Sareshwala appealed to SAT for a reprieve against the Sebi order. The tribunal, however, upheld the Sebi order and ruled against Parsoli. The promoters went on to challenge Sebi in the Supreme Court but dropped the case mid-way.

“There was no point in pursuing the case any further. It’s not worth to spend so much money on legal recourse. If we had won, we’d still be doing broking which, in any case, is not ringing in any money. What’s the point in fighting for a lost cause?” he said.

Parsoli has not decided if it wants to give investors an exit route. The company’s shares touched a peak of 259 per share in January 2008, when banking and NBFC shares were the flavour. The exchange suspended trading in Parsoli shares in July 2010, when the stock was trading at 18 and the company’s m-cap was 50.5 crore.

“We’re cutting our losses as of now… We’ll be profitable in two years’ time. We’ll put our capital to better use from now on,” Sareshwala said.

Competitors and other practitioners of Islamic finance are not surprised at the turn of events at Parsoli. The group was doing too many things rashly, said one of them. “Parsoli lost a lot of clients because of portfolio losses in 2008 and 2009.

They were trying to do a lot many things too fast,” said the head of another investment firm specialising in Islamic finance.