The Hindu Business Line : `I see a big shift to online transactions' — Mr Prasanth Prabhakaran, Sr. Vice-President, kotaksecurities.com

Investment World - Interview
Markets - Financial Services

`I see a big shift to online transactions' — Mr Prasanth Prabhakaran, Sr. Vice-President, kotaksecurities.com

Aarati Krishnan

It is our reach that has contributed to the growth numbers. We decided that rather than look at client addition numbers we would specifically target serious investors for our online trading initiative. This has made us quite profitable in this business.

KNOWN best for a strong research desk that is wired into the stock market, Kotak Securities is now spreading its wings into online vending of financial products. The online trading portal, www.kotaksecurities.com, was recently revamped as a one-stop shop for investors.

Business Line caught up with Mr Prasanth Prabhakaran, who spearheads the online venture, to discuss the progress of online trading, the kind of investors who take to it and Kotak's plans for the business.

Excerpts from the interview:

During the dotcom boom of 1999-2000, there were predictions that online stock trading would completely replace the offline mode. But that doesn't seem to have happened. What trends have you observed in online trading in India?

After a lull, there has been a significant pickup in online trading over the past couple of years. I am sure there is going to be a big shift in favour of online trading.

Globally, today, every second trade that goes through in the stock market is an online trade. We, in India, have a long way to go, but we sure are catching up at a good speed. We've seen a robust growth in investors transacting through the Internet since 2004.

What is the growth rate that Kotak Securities has managed?

At Kotak, we had an average online trading turnover of Rs 25-30 crore in 2003. Today, it stands at about Rs 500 crore. We have added about 50,000 active new users during this period.

This is partly a function of the reach that we have today. In 2003, we decided that rather than look at client addition numbers we would specifically target serious investors for our online trading initiative. This has made us quite profitable in this business.

You say you target only serious investors. Do you have any norms to admit clients into your online trading platform?

First and foremost, the investor should be net-friendly. Once I have the client registered, I would not want to place an order on his behalf unless he is travelling. I would prefer the client to do that himself. On our part, we provide all the inputs that a client would require — the research and calls and so on, on the portal itself. We also collect margins before opening an online trading account. This ensures that only users who actually intend to use the system register.

However, we are not looking at equity investors alone. We are offering a platform for transacting in a gamut of financial products and offering advisory services on the Web site. We offer IPOs, mutual funds, insurance, and plan to shortly include fixed income securities such as RBI Relief Bonds. This is a big change; earlier we were purely focused on equities.

On stocks, too, we have recently enabled trading on the BSE and have begun offering live quotes on the site. The versatility of this product is great. I, personally, have worked both in the offline and online broking businesses and have seen that the online product is so much more versatile.

Is there a big saving on infrastructure costs when you shift clients to the online mode?

Yes, there is. In the offline mode, I would have to develop a financial consultant team in each city or centre where I have a presence. We would also need dealers in every centre to execute client orders. We can avoid this with online trading.

In the online mode, we do not have to look for trained manpower to give advice and interact with the client at every location.

An investor can log on to the Internet and our centralised research team gives (stock) calls to him no matter where he is situated. Based on the research, the investor puts through his own trades. This net-based model has worked well for us and has advantages over the advisory model. Of course, we also have a back-up facility, manned by our staff, which clients can ring up to ask for help.

Has better Internet connectivity through broadband contributed to the popularity of online trading?

It certainly has. When you are transacting through the Internet, you would like uninterrupted connectivity.

You don't want the system to hang while you are putting through a trade. With better connectivity, today, these glitches have largely been ironed out.

At Kotak, I think that it is our reach that has contributed to the growth numbers. In December 2003, we had only six offices across the country. Now, we have about 122! By the end of this year, we should have about 200 offices. When we put up our offices, we don't necessarily wait for the infrastructure to come up. We believe that the infrastructure will certainly come up over the next five to six years and we already want to be there when this happens.

Nor are we looking to bring investors directly to stocks. If an investor is not keen on equities, we will distribute mutual funds to him, or we could do debt products. In any case, we will establish ourselves as an investment portal.

Seasoned stock market investors may prefer a personal interaction with their broker. Is it easy to get them to switch to online trading?

I think the Internet appeals to the new breed of investors who already use it to do a variety of transactions. These retail investors are comfortable with online trading. It is the older generation of investors, who are already used to offline trading, who may take time to shift.

But once they realise the advantages, they will. When you go online, you don't have to call your broker every time you want to trade. You don't have to worry about whether you are a priority client for him. The brokerage, too, is lower.

On our part, we are trying to compensate for the lack of personal interaction by giving out research calls based on the client's needs. We profile our clients based on their stock preferences, frequency of trading and transaction history.

We are trying to target our research calls based on this information. For instance, we are working on a special product for retail clients. We've found that most retail clients want information on when to buy and when to sell. They aren't sure, if a stock has been recommended at Rs 100, whether they should buy it at Rs110... We get in touch with these clients on e mail, so that we can to service individuals separately.

What is the profile of investors you are targeting?

One clear strategy is that — all new investors who are net-friendly — we would like to push them to the online trading. Servicing retail investors through the offline mode can be very expensive. So we prefer a model where we can serve them online.

Online trading is also suited to the retail investor, because he need not rely on the dealer who may not accord him first priority. Between an investor who calls up to buy 10 shares and one who places an order for a 1,000, the dealer is more likely to service the latter more promptly. When you go online, you can avoid this kind of a problem.

Online trading is also ideal for an investor who typically calls up his dealer and says, "buy this stock"; he doesn't need too many inputs and does his own research. In fact, many high net worth investors do not want a manual interface when they put through trades.

They would like to keep their transactions private and they would like to put through their own orders without any possibility of a communication gap. We service these clients through targeted research calls and a live chat facility with the research team.

Right now, high-net-worth clients make up 30 per cent of our online trading volumes, 50 per cent is accounted for by retail clients and 20 per cent comes from long-term investors.

In fact, we are seeing an increasing number of the last category — long-term investors who are quite clued in to the stock markets. These clients don't want a 15-20 per cent return from trading.

They want solid stock ideas from our research desk that could be multi-baggers, if held for over a year. These investors do a good bit of their own research and are willing to adopt a buy-and-hold approach. Clearly, the message that equities are for the long term, is hitting home with investors.

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