Despite the benchmarks ruling at life-time highs, CJ George, Managing Director of Geojit BNP Paribas Financial Services, believes that the best is yet to come. In an interview to Business Line he highlights the current state of affairs in the market as well as in the broking business. Excerpts:
How do you interpret the present rally with the market hitting all-time highs? Does it represent a bubble waiting to burst?
We have a significant risk now on this score.
But post-elections, if we have a stable Government, particularly a BJP-led Government, there is a possibility that a new rally in the market will start. In my view, the Indian market in terms of the Sensex has to go to 60,000 levels over the next four years to deliver globally historical returns. If I say this openly people will beat me up but if it doesn’t happen it will prove the 150-year-old recorded history of stock markets in the world is wrong.
Do you think that while expectations have been priced in, the risks have not been?
Yes, I agree. May 14, 2004, was the first major crash in the market in the last 50 years when Manmohan Singh became PM with the support of the Left parties.
On the day of the results, the market went down 15 per cent as it was expecting the continuation of a Vajpayee-led Government. Similarly this time, if the BJP does not form the Government there will be a crash but not necessarily by 15 per cent.
What would be your advice to retail investors?
The market is at a unique low point of a six-year bad phase, and that cycle is perhaps at its bottom. In 2008 it was at 21,000-22,000 level and from that point onwards every year it should have given 15 per cent returns but it didn’t happen. However, once the market revives, it will eventually give that kind of returns. There is no relevance to the view that the market is high and has already gone up, since in real terms the market has not gone up. So, people should take risks and invest their savings in instalments and not miss this opportunity. They should now divert at least 25 per cent of their savings to the equity market.
What changes are taking place in the brokerage business?
Broking firms would have to undergo a structural change in the manner in which they operate because of technology.
Till 2007-08, which was the last bull market, technology was not significantly used. But, today’s generation doesn’t want to call a broker over the phone; they want to trade over the mobile and Internet. Hence, the execution part will completely shift to a technology-driven platform. And since a large number of brokers will not be able to invest in technology that involves huge investment, they will face the issue of survival. They would have to shift from execution to advisory, financial planning or wealth management platform. This has already started happening.
What are the challenges faced by the traditional brokers apart from rising costs and falling revenues?
They face two challenges. They have not been investing in technology, in knowledgeable and well-qualified people to service new-age clients in a complex market. Today, the Indian broking industry is yet to equip itself to give investors advice on when to invest and where to invest. The next generation brokers will make money by acquiring new expertise and skill-sets required to answer these two key questions and help service the new generation of investors.
What are your future plans to grow the business?
We are investing significantly on our mobile trading platform than opening new branches. Over five years, mobile, including tabs and iPads, would be 50 per cent of the market. So, in the next phase, you will not see an increase in the number of branches of broking houses, but a lot of people getting hooked to the advisory platform wherein they will give advice to clients and clients will trade on their own.