The Hindu Business Line : `The face of stock broking has changed' — Mr Motilal Oswal, Chairman, Motilal Oswal Securities

Motilal Oswal Securities has emerged as one of the biggest retail broking firms in India with its offices spread across 123 cities and town. Its Chairman, Mr Motilal Oswal, feels the stock-broking business needs change with the broker's role changing from just execution of trades to planning investments for a client.

Excerpts from the interview:

The stock-broking business has undergone a sea change over the last decade. What are the factors that have led to these changes?

There are three main factors behind the changes in the stock-broking business. First, the shift from floor-based to screen-based trading in 1994. This brought transparency into trade execution and raised the confidence of investors.

The result has been lower transaction charges and increased convenience. This has helped both the investors and the brokers.

The second change was dematerialisation. Before this, buying or selling shares was a difficult matter.

Even when an investor bought shares, he was not sure whether they would be transferred in his name. But now these concerns are no longer there.

The introduction of futures and options was the third major factor that has changed the face of the stock-broking business as it is a new avenue for revenue.

The job of a stock-broker is to execute orders for buying and selling of shares. But how can a broker add value to this business?

Traditionally, a broker's main role was just to buy and sell shares. However, with the changes in the corporate and regulatory systems, his role has changed from just execution of trades to advice along with execution. In this case, a broker has to understand the need of the client, his risk assessment, period of holding and returns expectation. He has also to provide research-based advice.

But for small investors who want to invest, say, Rs 20-25,000, can a broker offer all these facilities just by charging brokerage fees?

It is not possible for brokers to offer small investors all these facilities. But at Motilal Oswal Securities, if you are a client through Internet trading, we provide you our research reports and execute trades for you.

You mentioned Internet trading. But it has not taken off similar to the reach of the Net. What is the reason for this?

Traditionally, the stock-broking business runs on advice and this has not changed much even now. Investors who are self-motivated and do not want advice prefer Internet trading.

But I still feel that the most important factor for the success of stock-broking is the human face. Another reason for Internet trading not being too successful is that the speed of the Internet is not fast enough yet in India.

Stock-brokers have started offering commodities trading. How lucrative is this business opportunity?

It is a new opportunity. But it is different from the usual equity trading in the sense that retail participation is not there. Only commodities traders who want to hedge their positions trade in this segment.

I see good interest from companies which want to hedge their positions.

For example, an entity engaged in trading of copper, aluminium or any other commodity and would like to hedge its positions would be interested in commodities trading.

From here where do you see the stock-broking business headed? What more value addition can it offer clients?

Stock-brokers till now have been offering just equity and debt trading. But this has to change.

They should move towards investment planning firms where a host of products are available at a single desk.

Another change I see likely to happen is the entry of global broking firms into India for retail broking.

Till now most of the global broking firms present here offer their services just to institutional investors.

When this situation arises, there will be consolidation in the stock-broking business.

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