Even as Internet facilities become more easily available, volumes in the online trading market are shooting up. In the three months to June 2010, volumes in the online segment averaged 23% as a share of total cash turnover, with the volume in May hitting an all-time high of 26%.
The trend is evidently here to stay, since brokerages believe the investing population will only grow younger. Says B Gopkumar, executive V-P, Kotak Securities, ?It?s affordable now since Internet usage costs have come down. Moreover, it?s convenient because one can trade independently and the platform can be used for after-market trades.? Adds Prasanth Prabhakaran, president (retail broking), IIFL, ?Several high net worth individuals, who used to trade with dealers, now prefer to trade on their own on the Internet because they value the privacy that it offers.? Professionals like bankers, lawyers, MBAs and accountants are increasingly taking the online route, he points out.
Brokerages themselves are encouraging customers to trade online despite the fact that the initial costs of acquiring online clients is typically 15-20% higher than the offline route. ?The cost of acquiring a client is extremely high as it is not a widely penetrated market,? says Kedar Deshpande, head of retail broking, Edelweiss Securities. Developing a search engine and setting up a central support desk also pushes up costs. However, brokerages say the initial cost is worth it as one saves on capex and manpower required for setting up branches. ?Online broking is a scalable model,? observes Prabhakaran. ?The addition of tools like mobile application will drive more users to the Internet platform,? adds Gopkumar.
Brokers say they are also able to deliver a uniform standard of service through the online route since the dependence on relationship managers is considerably lower. A relationship manager typically handles around 50 clients. Also, when dealing offline, customers generally bargain hard for discounts and a reduction in brokerage, whereas they don?t do so while trading online, leaving brokers with better margins. Among the top online brokerages are Sharekhan, Kotak Securities, IIFL, Motilal Oswal, Edelweiss.
Sharekhan has about 9 lakh customers, of which about 75% or about 7 lakh customers, trade online. Sharekhan is adding about 30,000 online customers every quarter. Edelweiss, which started retail broking in 2008, has about 80,000 retail clients of which 80% trade online. For IIFL, 30-35% of the Rs 3,500 crore daily trading volumes comes via online clients. With about 17 lakh customers, mostly online, ICICI Direct has the largest base of online customers.
And with new strides in technology, these numbers are only likely to surge. However, industry observers say the online numbers have to be taken with a pinch of salt as several investors with an e-broking account transact by placing orders over the phone at the branch offices. While the online space may be growing, offline trading still dominates as most traditional brokers still don?t offer retail customers the online platform.
Had it not been for poor Internet connectivity and high trading costs, the numbers may have been bigger. ?The speed of internet connectivity is low in tier 2 and tier 3 cities,? points out Prabhakaran. The average online brokerage for delivery trades of 25-30 basis points are higher than offline rates, which are 20 basis points. According to Prabhakaran, brokerage rates in the US, where nearly 50% trades take place online, are typically one-fourth those of offline charges. In India, punters who trade big volumes often pay discounted brokerages.