The decision of market regulator Sebi to give institutions direct market access is expected to create a lot of advantage. Cutting of transaction time and speedy trade execution will mean that institutions, especially overseas ones, would take to the markets.
TS Harihar, head (derivatives) of Karvy Securities says, ?Globally, institutions have a large amount of funds that are placed in markets using algorithmic models. These funds will take larger positions in the market now that direct market access is allowed.?
Algorithmic models use complex mathematical relationships amongst several technical, economic and fundamental parameters to bring out investment recommendations. Not many have been using these techniques in India as the transaction time and delayed trade execution time meant that the investor did not get the exact price that the model threw up. And this was the biggest impediment of running an algorithmic model.
?Large institutional investors like DE Shaw have a huge chunk of their investments based on such models,? adds Harihar. And they will be most pleased to have transaction time being altered. It would also mean an advantage to quantitative funds in India. These funds use rule-based investing, as opposed to discretionary investing techniques which require a smart fund manager, to take investment calls. Here again transaction and impact costs nullify the advantage created by the model.
Lotus India?s AGILE fund operates on a quant model. But its net asset value has crashed to Rs 6.85 after the November launch. Others like Reliance Capital and Benchmark have also lined up quant funds.
Experts also reckon that the inter-market arbitrage that takes place between the BSE and the NSE is expected to go down. ?Arbitragers would take advantage of the price differentials between both the exchanges, which would get created due to bulk orders placed by institutional investors. And this will be lowered considerably,? says a broker.