The Hindu Business Line : Rapid strides in stock broking

India’s capital markets have gained in recent years from the growth of the economy, spurred as it is by structural reforms pursued by the government, notes Mr A.K. Singh, MD & CEO, Shriram Insight. He also dwells on a range of issues.

Excerpts from an interview:

The broking sector is currently attracting considerable attention from private investors. How do you view the trend?

The pursuit of value creation is leading Indian companies to constantly evaluate alternatives with a view to meeting their strategic objectives. Corporate assets (businesses, brands, companies) changing hands are now a regular phenomenon in India. Companies are also evaluating different means of raising capital in the equity and debt markets. More players are likely to come forward to raise funds and list their shares. Broking companies are no different – they need funds to grow. Private placement and public listing are two critical ways of shoring up equity base.

Do you expect more brokers to raise funds and get listed?

Considering the ongoing macro economic bullishness in India, more stock broking companies should opt for private or public (or both) funding routes. The stock broking business has come to hog the limelight with increase in FII inflows, transparency and improved tax regime. The volumes on stocks exchanges have grown markedly over the years. And so has the business of brokers. The broking industry stands out in between an IT service company and a bank. This is because it provides both service and a trading platform backed by the latest technology.

What are the key factors that will drive the broking business in the days ahead?

Right now, fewer than 3 per cent of India’s retail assets are invested in stocks. Cash, bank deposits, real estate and gold dominate the investment pie. As our economy develops, equity participation will undoubtedly rise. If you see the current global trend (as in the US), 30-35 per cent of total retail assets get invested in the equity market directly. The value of total business conducted on BSE has crossed the $ 200 billion milestone, while the NSE is geared to record an annual turnover of well above $ 400 billion. The untapped potential is enormous. In the past, broking was restricted from spreading due to technological shortcomings. Branch-based business structure and lack of on-line order-execution facility barred growth. Recent technological developments have energized online trading. Spread of Internet-based trading will attract more people. Economic development is resulting in increasing disposable income. Along with that, our demographic profile is getting oriented towards the younger generation. The latter have a higher appetite for riskier investments. This too will spur the equity market.

Dynamics in the distribution business are changing rapidly, thanks to more players and more products. How is the future likely to shape up on this front?

With increasing disposable income, people will be left with more wealth. This wealth can only be channelled through proper networks. Nowadays, financial products are becoming more need-specific and, therefore, more complex. Improved distribution networks cater to such needs better. Even today, the financial distribution business is, to some extent, carried out in a scattered fashion. Products catering to different financial needs should be distributed under a single umbrella. This will reduce time and transaction costs. However, Internet penetration being limited, distribution companies need efficient networking channels too.

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