Boom in retail broking can play vital role in reviving RSEs

Updated: Mar 30 2007, 05:56am hrs
Retail is the buzzword in our economy today and more so for the broking industry. The investor count in India is just about 1-2% of our population as compared to over 15% in other developed markets. Our capital markets, although world class on many counts, has not yet succeeded in attracting the average Indian household in large numbers. Even the finance minister P Chidambaram has often called for the need to deepen the capital markets and bring a large number of retail investors into the market. There is a crying need to widen the investor base and increase the number of investor households.

The liberalisation and reforms process in the financial markets during the past decade has witnessed a sea change in the activities of domestic brokerage firms and in the way their business is carried out. With the opening up of the economy resulting in a far greater integration among the global markets, a sea of opportunities has been thrown open to these traditional market players, which they are trying to capitalise on. Stock-brokers today are thinking big. They are moving beyond their restricted geographical areas and establishing pan-India presence. Stock-broking has grown beyond the traditional individual/partnership units, and has attracted large corporates, banks and foreign brokerages. The focus is very clearly on the Indian retail investor. With the Indian economy growing at over 8%, and with the Indian companies growing at a health clip, the capital markets cant be far behind. The last few years have seen a sustained bull-run, and the trading volumes at the national exchanges have seen healthy increases. India is the place to be in is the common sound byte we hear from any international corporate/investor. The appetite shown by foreign exchanges and large international investors in buying equity in the Indian stock exchanges is a case in point. With so much optimism in the economy, we definitely need the Indian household investor to participate in this success story.

The last few months have seen stock-brokers expanding their horizon through various avenues. Some of them have tied up with large banks (mainly public sector banks), which I believe is the best way to focus on the retail investor. The banks have tremendous retail reach and a large customer base. To bundle stock broking services with the normal banking products/services is clearly a winner. Most private sector banks already have a group company offering stock broking activities to the investing public.

Some of the large stock-broking entities have announced foreign tie-ups. These foreign entities, hopefully with large pockets and ideas, would be aggressive in expanding their area of operations. These foreign players should bring in their vast experience and best practices followed abroad to our country. I sincerely hope they would offer unique products and take customer servicing to a new plane.

An area of concern for me, is the lack of focus on the Indian rural investor. If the Indian economy is to attain and sustain a double-digit growth, then the role of the rural economy becomes vital. I have visited many remote corners of Karnataka, and have been amazed at the response to the investor meets in these far-flung corners. The capital markets or investors dont just exist in Bangalore or in other metros but must reach out to remote rural corners of India. The numbers in the rural areas need no mention and a small fraction of them in the capital markets would swell the participation and definitely deepen the capital markets. It is here that the regional stock exchanges (RSEs) and their members can be best put to use. The RSEs and their members may better serve this class of investors, who are region-specific and need hand holding. Regional aspirations are not to be ignored.

The Indian investor is today looking for much more from the stock-broker, much beyond access to the secondary markets. He is looking at a complete package of investment avenues. He seeks funding for his primary market investments, margin funding for his secondary market investments, investment advice and guidance, investment in mutual funds and allied investment products. The stock-broking industry, in my opinion, is well geared up to take up and meet this challenge.

The author is chairman, Federation of Indian Stock Exchanges