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India's Top Banks 2010 - Interview Section

Pref ace|Foreword|Executive Summary|Methodology|Overview Of Indian Equity Market |Primary Insights|Financial Insights|Interview Section|Company Listing|Sponsors|Launch Event |Editorial Team

Q. Kindly comment on the changes that have taken place in the broking industry in the past five years. A. The broking industry has gone through a rapid pace of changes over the past 5 years. From increased participation of retail investors through the online platforms to introduction of STT, a lot has happened in the industry. Some of the changes have been for better and some otherwise. The distribution channels of the industry have also increased and have reached the hinterlands of the country which could not access the Indian capital markets due to lack of such channels. In the last 5 years, Algo trading has also became very popular and its share in overall trading volume has increased substantially. New instruments have also been made available ranging from currency trading, option contact currency, interest rate derivatives and trading in foreign indices S&P and Dow Jones. The broking houses have become more techsavy and their spending on technology and infrastructure has increased substantially. Hosting server in co-location i.e. in exchange premises coupled with tic by tic broadcast has also resulted in reducing the latency and now high frequency trading as happen in developed exchanges has found its way in Indian exchanges also. Q. What are the major challenges faced by the broking industry? A. The industry faces quite a lot of challenges. The biggest of them is the fall in volumes due to lack of conviction on part of the investors in the Indian market. This is especially true for the Spot market more popularly known as the C ash market. Falling brokerage rate due to increase in competition is also another challenge. C ompliance level has also increase substantially with the stringent regulation with regards to collection of margin from clients & penalty provision on change of quotes & other legal & compliance issue. The second round of reforms which were used to take our financial market to the next level also not happened. Even the cost of trading into equity is very high on account of STT which is hampering volumes. So, higher STT is also one of the bigger challenges. Varying rates of stamp duty from state to state is another problem and need to be uniform. Q. What are the major growth drivers of the Indian equity market? A. The major growth driver of the Indian equity market in the future shall be the increased focus of RBI on financial inclusion leading to more individuals with access to banking channels. The initial focus for them shall be to improve their savings, but the next step for them shall be to grow their wealth by investing in various asset classes including equity markets. Another growth driver is increase in the flow of investments by FIIs and opening of our markets for foreign nationals to make investment through Indian mutual funds. Also availability of more Instruments & global products in Indian exchanges will increase local participation. Reduction of STT and uniform stamp duty will also play critical role in the growth of equity market. Q. Kindly comment on the role of FIIs in the Indian equity market. A. FIIs continue to play a very prominent role in the Indian equity markets and are expected to do so in the near future too. However, the downside of this reliance on FIIs is that our markets have turned very volatile over the past few years and are now more integrated with the global economies. Q. What opportunities do you see in the Indian broking industry in the next three years? What strategies has the company adopted to explore these opportunities? A. The biggest challenge for the Indian broking industry in the next three years shall be to serve the increasing investor base (especially from low income groups) in a cost effective manner. This can be done by partnering with various banking institutions to avoid duplication of distribution channels, especially in rural areas. Introduction of innovative products like SIPs for investing in equity markets can be other ways to reach out to such customers. More FIIs participation in the future as Indian currency is still undervalued also India has low external debt to GDP ratio. As Indian economy is strengthening more participation in Equity market is expected. Q. What steps have been taken by your company to encourage investors awareness? A. We have always given prime importance to empowerment of the investor with requisite skills to perform better in this dynamic capital market. We are well aware of the fact that till now penetration of capital market is very poor in India, even though Indians are always considered as one having high propensity to save. It is very important for a company like us to educate Investors, so that they can achieve full potential of their money. Every year we organise numerous Investor awareness seminars across the country. Last year we organized over 120 such seminars to encourage investors awareness. To reach the masses, most of the events are organized at our Sub broker/ Branch level. Besides this, we also participate & promote several other seminars with various government & private bodies like, ASSOC HAM, FIC C I, D&B, etc across the country. Our research experts share their views on market, economy, sectors, personal finance, etc via various TV C hannels and newspapers. SMC also publishes a weekly research Magazine Wise Money covering various asset classes viz. equities, commodities, currency, IPOs, mutual funds & fixed deposits. Around 5,000 copies of it are printed every week with over 45,000 e-copies of the same circulated among our investors, financial institutions, sub-brokers, traders, etc. Q. Do you think there is a need for consolidation in the Indian broking industry? A. In the current scenario, there does seem a need for consolidation in the broking industry as the revenues and the profit margins of the whole industry

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7/22/12

India's Top Banks 2010 - Interview Section

have taken a beating due to the intense nature of competition. Q. What is the position of Indian bourses as compared to their global counterparts? A. The Indian economy and the markets are now operating in an interlinked and integrated world. If there are problems in the world economy and markets, then India cannot remain in isolation. Thus, we are going to feel the turbulence as the world economy is headed into a recession. Having said that, considering the pace of growth of Indian economy and the strong domestic consumption story one can expect some out performance on part of the Indian equity markets vis--vis the global markets. Q. Your views on the proposed SME exchanges. A. The proposed SME exchange is in the right direction and shall allow many companies to raise funds for their growth, which are otherwise not eligible to raise funds from the existing stock exchanges. This shall also allow investors with high risk appetite and seeking high-returns to participate in the SME story of India.

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