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Prosharpe Wealth Management*

CASE STUDY, FINANCIAL MANAGEMENT
ET Cases, 17 Pages
AUTHOR(S) : Dr. Puran Singh (BITS-Pilani, KK Birla Goa Campus), Dr. Nupur Pavan Bang (Insurance Information Bureau of India, Hyderabad) and Prof. Rajesh Chakrabarti (Bharti Institute of Public)

Case Preview

Prosharpe Wealth Management

 

On November 8th 2010, Ramanjaneyulu Vaidyula (Vaidyula), sitting in his air conditioned office in Hyderabad, India, felt a trickle of sweat on his forehead as he leaned forward in his chair to have a closer look at his computer terminal. He was holding the mouse tight in one hand while gripping the armrest of his chair with the other. He loosened his tie, wiped the sweat, drank a sip of water and slumped back in the chair. He had just lost over 1.5 million in intra-day stock market transactions.

Vaidyula, a Non-Resident Indian (NRI) had spent around 15 years in the US, where he had completed his education and gained work experience before moving back to India in 2004. He aspired to combine his passion for starting his own business and fascination towards financial markets. While he was at his first job in the US he had done his first investment in the commodities market in 1994. The markets were performing well which helped in nurturing his interest in stock markets. To enrich his knowledge of investments Vaidyula enrolled for Masters in Business Administration at Carnegie Mellon where he took various courses in Investments. The markets were performing well. He developed further interest in stock markets and enrolled for Masters in Business Administration at Carnegie Mellon where he took various courses in Investments to enrich his knowledge of investments. He wanted to combine his passion for starting his own business and fascination towards financial markets.

Vaidyula, after moving back to India in 2004, took up a job with Wipro Limited, but the aspiration to start his own business made him restless. During the same period, the Indian economy was experiencing healthy growth rates. In next couple of years, Vaidyula decided to quit his job and capitalize on his experience of investing in the US markets. After long deliberations, Vaidyula started his own investment advisory firm named ‘ProSharpe Wealth Management’ in 2008.........

The Genesis of the Idea

Vaidyula, better known as Anji among his friends and relatives, did not belong to a business family though the world of business always excited him. During his study days in the US, Anji worked at a store in New York to support his education. He noted that small stores, such as the one where he worked, made $70,000–$80,000 per year. He believed that he should set up his own business that would allow him to make money as well as doing what he had always aspired.............

Groundwork

During the second half of 2006, Anji started discussing his business idea with colleagues, friends and relatives. The feedback was encouraging as some of them even committed to invest in his business. He interacted with different sets of people to get a sense of investment preferences and behavior of people in India. He noted that there was a significant difference in the risk taking ability of individuals in India and the US and their approach towards risk..........

India Wealth Management Space

In 2010, individual wealth (excluding physical gold and real estate) in India was estimated to be worth 73 trillion. Of this, approximately 34%was held in equity and 65% was held in fixed debt, while balance was invested in alternative assets. By 2012–2013, the individual wealth was expected to double to 144 trillion..........

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The outlook for the industry was positive due to following factors:

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Starting Prosharpe Wealth Management

The excitement of applying the models learnt at B-School and through various courses, excited Anji so much that he quit his job with Wipro in 2008 to ensure full time attention to business idea.

In January 2008, Anji started ‘Prosharpe Wealth Management’ with a total investment of 4 million of which he contributed half that entitled him to 80% stake in the firm. The other half was contributed by five partners (his friends and former colleagues) equally for 4% stake in the company each...........

Customers Acquisition Strategy

Anji had developed an elaborate plan for customer acquisition (Exhibit XI). Initially, the staff would use their contacts as most of them would have earlier worked with banks or other brokerage houses. The direct marketing strategies to acquire customers varied for each of the major customer segments (Exhibit XII). The high level marketing plan for the first three months included the following:..................

First Hiccups

On January 21st 2008, Indian markets experienced a major crash that halted the bull-run and altered investors’ sentiments. It was the biggest correction in Indian stock market history. However, Anji believed that if anything, this made investors more careful in future investments and that was where it could prove to be an opportunity for his business.............

The Going Gets Tougher

In September 2008, Anji developed severe back pain, spondylitis and tuberculosis. He was hospitalized and advised to an immediate operation. He considered putting the business on hold, but other partners pressed that business be continued............

Redemption in 2010

The original business plan of investment advisory had not gone as expected. Anji had to get into stock broking to keep the business going. Soon he ventured into options market as well that carried high risk but offered greater brokerage. Dabbling in multiple products including mutual funds, health insurance, auto insurance, trading, etc., Anji hoped that sooner or later investment advisory business would pick up..........

The Fateful Day

Anji had been successfully taking high risks in options market for some time now. Unfortunately, he ran out of luck soon. On November 8th 2010, a short strangle, which involved selling both calls and puts, went wrong. He ended up incurring an intra-day loss of 1.5 million which left his confidence broken. This was a large sum............

The Tough Decision

In order to make any money now, Anji first needed to reach high-watermark and then beat the market. Secondly, now that existing clients had lost their portfolios fully/partially, he needed a new clientele to continue. This was even harder given that business relied on referrals from existing clients who would no longer be willing to endorse ProSharpe. He remarked:...........

Exhibits

Exhibit I: GDP Growth Rate of India (%), (2001–2011)

Exhibit II: Savings Pattern of Indian Households

Exhibit III: Monthly Performance of the SENSEX, 2003–2012

Exhibit IV: Annual Returns of SENSEX, 2002–2012

Exhibit V: SENSEX and S&P500 Returns Compared, 2003–2007

Exhibit VI: Services Offered by ProSharpe Wealth Management

Exhibit VII: Investment Process Framework of ProSharpe

Exhibit VIII: Households in India based on Income Categories

Exhibit IX: Estimation of Potential Clientele in Hyderabad by ProSharpe

Exhibit X: Estimation of Potential NRI Clientele by ProSharpe

Exhibit XI: Customer Acquisition Plan

Exhibit XII: Marketing Plan – Direct Marketing Key Milestones

Exhibit XIII: Category of People as Referral Partners

Exhibit XIV: Long-term Customer Acquisition Strategy

Teaching Note Preview

Prosharpe Wealth Management

 

Synopsis

The case study brings out importance of understanding customers for financial intermediaries in Indian wealth management industry. First decade of 2000s saw tremendous economic growth and rise of middle class in India which boosted savings and investments by individuals. ProSharpe offered a product which did not exist earlier in the market – financial advisory services. Earlier the advisory part of financial products was free of cost for investors. There were not professional service providers that could customize portfolio management and monitoring services according to risk apatite of an individual investor. While the brief market research showed positive results for the product, actual market launch experienced great difficulties customer acquisition being the major challenge. Customers liked the idea of customized portfolio management services, but they were not ready to pay it. ProSharpe suffered from lack of through market research before launching its products. Ramanjaneyulu Vaidyula (Anji), the promoter, tried his level bet for over 2 years to revive the business, but ProSharpe had to shut-down owing to lack of customers and financial loss.

Expected Learning Outcomes

  • • Understand the nature and dynamics in wealth management market in India
  • • Understand the process of setting up a business in financial services/intermediary space
  • • Emphasize the importance of understanding customers in Indian wealth management Industry

 

Case Positioning and Setting

This case study is fundamentally designed for a Bachelor or Masters course in Finance Management. However, this case study can also be used for teaching the importance of Financial Services and Entrepreneurship.

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Product code: FIN-1-0007, FIN-1-0007A

Abstract

**IM RAIPUR - ET CASES Award (GSMC 2014) – For a Case, Showcasing Futuristic and Progressive Idea

Award Winning Case Study
Does passion always payoff? What if the passion becomes a new found career pursuit? Ramanjaneyulu Vaidyula's (Vaidyula) case highlights the slip between the cup and lip, in converting one's passion into a profitable career pursuit. On November 8th 2010, Vaidyula, sitting in his air conditioned office in Hyderabad, India, felt a trickle of sweat on his forehead as he leaned forward in his chair to have a closer look at his computer terminal. He loosened his tie, wiped his forehead, took a sip of water and slumped back in his chair. He had just lost over ₹1.5 million in intra-day stock market transactions.
Vaidyula, a Non-Resident Indian (NRI) had spent around 15 years in the US, where he had completed his education and gained work experience before moving back to India. He aspired to combine his passion for setting up business with his fascination for financial markets. After returning to India, Vaidyula decided to capitalize on his experience of investing and set up his own investment advisory firm 'ProSharpe Wealth Management'* in 2008. Vaidyula worked extremely hard to steer his business through many ups and downs. While the business did not take off as expected, he always believed that break through was close. He had borne costs in the past, but this was a grave situation as it involved ₹1.5 million of clients' savings. The loss of this magnitude would pull back his business by a few years.
He was not sure what lay ahead. Will he have to rethink his business venture and take a tough call? Was it the end of his dream? Was it the moment of closure? What would it take Vaidyula to redeem the fledgling wealth management firm that he passionately built?



Pedagogical Objectives

  • To understand the nature and dynamics of wealth management market in India
  • To understand the process of setting up a business in financial services/intermediary space
  • To emphasize the importance of understanding customers in Indian wealth management industry

Case Positioning and Setting

This case study is fundamentally designed for Graduate/Postgraduate programs in Finance Management. However, this case can also be used for teaching importance of Financial Services and Entrepreneurship.

 

* Award Winning Case, GSMC 2014, IIM Raipur



This Case Pack Includes:
 - Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)


* GSMC 2014, IIM Raipur

$7.31
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