UBS has teamed up with Noble, the UK investment bank, to tap the demand for investment alternatives to those in crisis-hit developed stock markets by offering research on small and medium-sized Indian companies.

The biggest Swiss bank will offer Noble’s research and execute orders for its institutional clients.

India’s main stock market indices have gained more than 10 per cent this year, compared with declines of about 5 per cent for US and European indices. The benchmark Sensex index has surged by a quarter since the end of February, fuelled by a boom in demand from abroad.

The country has about 5,000 listed entities, the vast majority of them small and medium-sized enterprises, or SMEs.

The Indian stock market is worth about $700bn, (£475bn)with small and mid-cap companies accounting for about 40 per cent of its value.

While UBS has been the top investment bank for equity trading and execution services in Asia for the past three years, according to Thomson Extel rankings, it has focused on the top 100 companies.

Annual commissions for trading in smaller companies are about $200m, with the top five traders, including CLSA and Kotak, dominating two-thirds of the market, Saurabh Mukherjea, head of Indian equities at Noble, told the Financial Times.

Smaller companies trade at a 30-50 per cent discount to their larger counterparts because of a lack of market liquidity, he estimated.

Noble, which started its equity business in India last year, has 11 analysts covering technology, consumer, financial, power and infrastructure companies with a market value of less than $2.5bn.

“Domestic-centred stocks in India are attractive and will stay so for the next two or three years,” Mr Mukherjea said.

He added: “Ironically the top 50 Indian companies are more exposed to the current global slowdown. Below the top 50, there are a range of mid-cap companies who are largely domestic-centric and whose revenues are relatively unscathed.”

The tie-up should add “very meaningfully” to Noble’s global revenue and UBS’s Indian revenues within three years, Mr Mukherjea said.

UBS has been grappling with the heaviest writedowns of any European bank since the onset of the credit crunch.

Its alliance with Noble contrasts with rivals – including Goldman Sachs – that have cut back coverage in India in the past year.

Additional reporting by Joe Leahy in Mumbai

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