After dissolving its joint venture agreement with BNP Paribas, Geojit Financial Services is charting out its next phase of growth. At the helm is CJ George, the Founder and Managing Director of the company who spoke with BusinessLine on the way forward, regulatory headwinds and impact of discount broking. Excerpts:
What are the broad headwinds or concern areas for you this year?
For the Indian markets, first and foremost I think is the ongoing deglobalisation trend all over the world is worrying. This stems not only from the US, but even the uncertainties due to the French elections, Brexit, so on and so forth may have a lot of impact on the Indian markets. So, that is a major risk.
Is the impact of demonetisation over now?
I am of the view that the money crunch people faced is over and so also its difficulties. Now, I think remonetisation has almost been completed, but demonetisation had an indirect impact on the investment climate as entrepreneurs tend to believe that there is policy uncertainty due to the general feeling that the government could even undertake the most unexpected measures.
Did it impact your business in that quarter?
We are a beneficiary. The financial market, particularly the capital market, became the first transparent digitised market in the country. Earlier, we had the bullion market and real estate market which were not transparent, and the only market that was transparent was disliked just because it was transparent. Post-demonetisation there is an attempt to create a level-playing field in terms of transparency. This will only help the financial markets.
In terms of its structure, the Indian market is changing because of the strength provided by the large number of small investors through SIPs and MF investments. I am of the view that in the next three to four years, investments into MFs through SIPs will go up to ₹15,000 crore a month from ₹4,500 crore a month now. This is becoming another opportunity.
What do you make of SEBI’s regulation related to commissions and brokerage fees?
The regulator pressurising intermediaries to provide free services when intermediaries are private commercial entities, was unexpected. It has impacted the investors as DPs are generally neglecting that particular segment of clients today who invest less than ₹2 lakh every year. It’s the small investor community that has suffered the most and this administered pricing has indeed become an indirect entry barrier for them. With regard to MF commission, the market has reconciled to the reality and moved on.
Now that we have a new SEBI chairman, would you like to flag anything which he should look at?
I am of the view that SEBI in the last one decade or so has been focusing on investor protection and rightfully so. But unfortunately and perhaps unknowingly it may have neglected market development to a certain extent. So, for the new chairman, maybe, it’s an opportunity to look at how the market can be grown into a deeper one.
The very fact that new investors are not entering the direct equity market and that the number is not growing is a demonstration of this problem. Perhaps, a lot of compliance costs can be avoided by doing away with the many segmental inspections and segmental compliance requirements. We all have to go through inspections by CDSL, NSDL, BSE, NSE and SEBI for each of the registered activity. A huge compliance cost can be addressed if SEBI can come out with one single inspection for all the activities.
Is it true that there were disagreements with BNP Paribas on their acquisition of Sharekhan?
I must confess that we had a difference of opinion with regard to BNP Paribas acquiring a competitor while still having significant control in Geojit. Being a listed company, Geojit’s independent directors flagged off this as conflict of interest. So, over a period of time we sorted it out and entered into a new agreement and mutually agreed to enter into a new phase in our relationship. Thereafter, we have an extremely warm relationship with BNP Paribas, an important shareholder of Geojit.
What is the impact of competition from discount brokers?
We have not seen investors moving out to discount brokers while some punters do. Punters certainly like discount brokers as they can trade more. Empirical evidence from retail trading behaviour has shown that majority of retail traders in derivatives and day-trading lose money and get out. We have positioned ourselves as an investment services firm rather than a punters platform.
So what’s next?
We are of the belief that India today offers a lot of opportunities for retail investors at a time when interest rate is coming down and formalisation of the economy is catching up. The investment services industry as a whole should welcome the digital economy plan of the government as the cost of delivery of services will go down. So, intermediaries like us need to bring more number of retail savers into this market and we always educate the saving community that the ordinary Indian, although he has money to invest, is not getting his due share of India’s economic growth. The way for an ordinary Indian to share in the country’s economic growth is to have at least a small investment in the capital market.