The Hindu Business Line : Retail segment too now demands research-based reports

Mr Asit Koticha, MD, ASK Raymond James, is not unduly worried even if the market has traversed beyond 13,000 points. The fundamental corporate earnings cycle remains optimistic, he notes, even as he takes a look at the emerging trends in the stock broking business.

Excerpts.

The market is not showing any major signs of letting up. Aren't prices a little too stretched?

At 13,000 points, prices might be stretched. But they are not overvalued. With about 6,500 listed companies, there are still opportunities for investing in stocks that can offer good growth. The potential returns and growth rate of corporate India continue to be quite robust.

Therefore, even now, while there may be corrections ahead, we believe that fundamental corporate earnings cycle remains very optimistic. Fund flows are due to India Inc's strong earnings growth. Our growth drivers include a favourable demography, with a large share of young population, robust domestic consumption and acceleration in infrastructure investment.

What can investors expect from stocks in the days ahead?

Investors can continue to look at returns of 15-20 per cent from equity since the growth story is compellingly strong. But remember, any increase in inflation, and consequently the interest rates, could affect the markets adversely. However, we recommend investors to have a long-term focus and not look at short-term gains. A 3- 5 years horizon is preferable.

How is the stock broking business panning out in India? Do you see the arrival of discount brokerages?

The broking business has two dimensions: research and transaction. Services begin with research-based advice to execution of transactions across multiple product offerings and multiple delivery channels.

Earlier, only institutional clients enjoyed the benefits of comprehensive research reports. However, the retail segment now demands research-based reports too. The business is no more just a transaction-based exercise. There is a distinct flow of information, courtesy reports on sectors, reviews of specific corporate performance, portfolio evaluation and the like.

On the institutional side, transaction cost reduces with increase in the value of investments. In order to complement transactions, clients are willing to pay a greater value for good quality research. In the days ahead, we see clients willing to pay separate fees for research and transactions.

Additionally, increasing volumes will compensate for the reduced brokerage rates, as the absolute values of broking income will only go up.

Any clear trend on the retail side?

It is imperative for retail customers to have a good research support, as the brokerage will be a small portion of the cost/value proposition. Thus, while brokerage rates become relevant for day traders (as higher transaction costs would make it unviable for them to transact), these should not make a difference to long-term investors.

Discount brokerages are the way to go if you do your own research and make your own investment decisions. Since most brokerage houses make available these to investors, the entire discount concept balances out.

What else is likely to emerge?

With FII activity continuing to show an upward trend, domestic MFs becoming more active, foreign MFs entering India, institutional flows will only increase.

Today, the AUM of MFs, as compared to bank deposits, is diminutive. But this will soon change, thanks to increased participation by HNIs.

For the latter, PMS offerings are already becoming more popular. Such investors will expect greater handholding from their portfolio managers.

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