The STT in the cash segment is not the sole driver for the volume shift towards options. The main driver is the margin.
Sudip Bandyopadhyay, MD and CEO, Destimoney Securities, is betting big on growth of options’ segment and franchisee model to drive the expansion of his company’s brokerage business. Using the hub-and-spoke model, the company plans to expand its offices across India to 60 from 45 and take its franchisee network to 3,000 from 1,426 by March 2014 to drive growth. Excerpts from his interview given toBusiness Line:
What are the current trends in the brokerage business?
Options are fast catching up today. F&O got introduced about 12 years ago and initially futures picked up and took the lead as it was very close to ‘Badla’ system while options were languishing. But post the financial crisis of 2008-09, options started getting traction and now options are between 70 and 80 per cent of the market on a daily basis.
It also makes sense as in options with limited exposure you can play the market whereas in futures one needs higher exposure. The STT in the cash segment is not the sole driver for the volume shift towards options. The main driver is the margin.
What scope do you see for growth of the options market?
Options are not popular yet for the retail or mass investors. It is still a trader, HNI and institutional product and these are the categories who really are present in the market. Even if delivery segment picks up, options would continue to comprise 70 to 80 per cent of the market and this is just the tip of the iceberg.
If we look at the option contract, it is only Nifty, Bank Nifty and select counters such as Reliance, Tata Motors and Tata Steel, which are the main counters where option volumes are there while the permitted list consists of over 200 scrips. As other contracts are illiquid, the scope for options to grow is huge. Moreover, investors have options of taking delivery transactions through many brokers but for options only a few brokers are present.
For us this trend works well as we are focused on a segment which is exponentially growing and will continue to grow.
But given the volatility in the markets today, prime investor concern is safety of their capital. To achieve this we are going in for basic trading strategies in options such as butterfly or straddle where risk is minimum.
What is your outlook for the equity markets in 2013?
We are bullish on the equity markets. Though ups and downs will continue, if you play in a calibrated manner you can make money irrespective of the market conditions. Options is a great tool in such a case. Markets will remain choppy as we are heading towards an election year and the global economy too has not settled fully with concerns remaining in the US and Europe.
But despite volatility, India will continue to have a superior growth compared to most of the other economies which in turn will lead India to attract lot of foreign money. This happened last year, and will continue this year too. Liquidity will be favourable in the market and based on this, we will have a bottom-up rally.
We are betting on improved corporate India performance and in spite of a negative environment, things have been moving based on performance. For instance, several IT, FMCG and pharma companies have fought back with an average growth of 15 to 20 per cent growth which is commendable. We expect this momentum to continue and lead to growth and money-making opportunities for customers. Overall, we are expecting an upside of 15 to 20 per cent for 2013 on both benchmarks.
What is the challenge to this view of the markets?
The biggest challenge is that we are headed towards an election year so there will be some populist measures. I am not sure about the implementation of the reform measures. Lots of reforms initiated have been pending and though some have been implemented, there are still a lot of gaps. Things are not really moving in the power, infrastructure and mining sectors and several roadblocks still remain.
Though the Finance Ministry is trying and there have been a lot of effort, it will be extremely difficult in an election year to implement a lot of these measures. Lot of expectations are being built around the reform process and while momentum may continue, a lot of these reforms may not get implemented and that is a big risk.
What advise would you give retail investors?
The days of wild bull run are long over and nowadays markets would keep moving up and down. So, instead of looking at the index, one should look at specific stocks and be much more savvy than they were in say 2006. It is never an all-across-rally and investors must understand that.
Overall banking, FMCG and pharma sectors will continue to give good returns if one picks the right stocks. Power and infra stocks would continue to remain under pressure as I don’t see too much of policy clarity coming forth on them soon. So, it still may not be the right time to buy these stocks.