Dalal Street Goes Cyber

With a vengeance, stockbroking firms in Mumbai are embracing the Net. The motivation is simple: easier trading would mean more clients. And that's good reason for brokers to put down their cash to set up their e-investing sites. Says Paresh Khandwala, 42, Director, Khandwala Securities: ''It's going to be technology-driven and, thus, require huge investments in hardware, software, and maintainence.'' Entry-level investments range from Rs 50 lakh to Rs 2 crore. Says Ashwin Parekh, 46, Executive Director, PricewaterhouseCoopers (PWC): ''Progressive brokers will put up Websites and look at various value-added services to attract traffic to their sites.''

Some of the first movers did it because of market compulsions. Geojit's George relates how his firm moved to Net-trading because the 4,000-odd clients in and around Kerala were finding it difficult to get through to place their orders. The 10 salespersons and 34 telephone lines in Geojit's offices could, at best, cater to 400 investors.

Geojit kicked off its Net brokerage by taking a Rs 3 lakh deposit from investors and giving trading limits up to 3 times the amount, till the interface with banks for on-line bank accounts is established. The two other firms offering on-line trading-Investsmartindia and ICICI Web Trade-require investors to open a bank and DEMAT account with specified banks and depository participants.

Experts see the evolution of e-broking in three phases:

In the first phase, stockbrokers will offer on their sites features like a live portfolio manager, live quotes, and market news. The objective: to attract more customers. Says PWC's Parekh: ''Picking up a major marketshare in the first phase will be the challenge.''

In the second phase, stockbrokers will offer on-line broking as well as relationship management by offering analysis and information to investors even during non-broking hours based on the profile of the investors. Essentially, based on data-mining, these services could be customised. Consider, for instance, that angel.com, an on-line brokerage, sees its customer, Priyanka Amin, buy 200 shares of Rolta India. Her portfolio shows she already owns 100 shares of Satyam Computers. Taking a cue about Amin's penchant for software stocks, angel.com could send Amin information about Cybertech, another software company.

In the third phase, e-brokers could offer value management or additional products like initial public offerings on-line, on-line tools for asset allocation, financial planning, and insurance to its customers on a proactive basis. Says Hemang Raja, 41, Managing Director, Investsmart: ''The game is going to be one of continuous innovation or providing more features on the Website which will enable the investor to make better decisions.''

Still, not all brokers are rushing into cyberspace. Many prefer to test the waters first before taking the plunge. Says Devan Choksey, 34, Managing Director, K.R. Choksey Shares & Securities, which has kicked off by providing basic information on equities, fixed income instruments, economy round-up, and DEMAT guide on its site: ''There is no point in giving a Rolls Royce to a person who can't drive. Initially, it's essential to provide basic information on on-line trading and tools that will enable investors to take decisions.''

Others like sharekhan.com, launched by SSKI Securities, are information-based sites that are aimed at educating and informing investors. Says Karthi Kumar Marshan, 31, Chief Marketing Officer, SSKI: ''The easy-to-use tools enable investors to analyse investment options and track portfolios. Over time, Sharekhan will offer seamless buying and selling of shares.''

But everybody doesn't have pockets deep enough to offer on-line trading services. The SEBI norms require brokers to have net worth of Rs 50 lakh to provide Net-based trading facilities. Yet, there is a way out for small brokers. The NSE-it, a subsidiary of the NSE, will be setting up a brokerage plaza, a common securities market Website that is shareable by brokerage firms. An investor can log on to the Website that provides hyperlinks to the dealing room of each of the registered broking firms and enter her transaction as well as get a confirmation on-line-a facility that is cheaper for the broker.

Will cyberbroking be the death of brick-and-mortar brokerages? No way. And you can put your money on that. In the US, Charles Schwab, one of the largest on-line brokerage houses, has 360 branches, and nearly 60 per cent of its customers come through the physical branches. It also offers personalised service to customers by assigning service representatives depending on how often they trade and the amount of assets. td Waterhouse's strategy has been to have a growing office network supported by telephonic service centres along with electronic distribution channels. Morgan Stanley Dean Witter On-line allows investors a choice of self-directed investing on-line, or traditional full service advice channel at 450 branches across the US.

The company has also tied-up with the Sears chain of malls where shoppers at Sears can trade on-line. The same could happen in India. Says Raja of Investsmart: ''Along with the growth of Net trading, you can expect to see an expansion of retail investment centres. Investors prefer personalised interaction before taking an investment decision.'' Investsmart, for instance, has tied up with Shoppers' Stop to set up Investsmart Shoppers' Stop outlets that will provide the 40,000-odd customer base of Shoppers' Stop access to investment expertise and trading facilities. Investsmart has also set up 'cybersmart kiosks' in Bangalore where its registered clients can access the Net. Adds Dilip Pendse, 44, Managing Director,Tata Finance, which has tied-up with the US-based td Waterhouse for providing Net-broking services: ''The Indian investor wants eyeball contact and, therefore, our approach will be e-broking, along with branch offices and customer services centres.''

A Cyber Explosion

Yet, you can expect explosive growth in on-line trading. In the US, research reports estimate that on-line trading volumes have increased dramatically from under 100,000 trades per day in the second quarter of 1996 to over half a million in the second quarter of 1999. US Bancorp Piper Jaffray, an on-line financial services tracking agency, estimates that by the end of the second quarter of 1999, there were 9.7 million on-line accounts, up from 3.7 million in 1997 and 7.3 million in 1998. Discounting for multiple accounts, Piper Jaffray estimates that there are now approximately 5.8 million on-line traders.

According to Forrester Research, by 2003, 9.7 million US households will manage more than $3 trillion in 20.4 million on-line accounts. Jupiter Communications estimates that, by 2003, 20.3 million households will trade on-line and also puts total on-line account assets at more than $3 trillion.

You can expect to see a similar boom in India. Although it is premature to forecast numbers, there is at least one precedence to show that on-line trading will not lack aficionados. Six years ago, when the NSE launched satellite-based trading, stock-trading was extended to the remotest metro in India. The BSE followed with its bolt system, and now market volumes have risen to over 25 trades a second on the NSE and 20 trades a second on the BSE. Factor in Net-based trading and this figure could leapfrog exponentially. Says R.H. Patil, 45, Managing Director, NSE: ''I wouldn't be surprised if we witness 50 per cent surge in trading volumes on the exchanges in a year's time.'' Points out G.V. Nageswara Rao, 39, Managing Director, IDBI Capital Market Services: ''More than 40 per cent of the retail trade in the US takes place on-line.''

The e-Broking Sweepstakes

How easy will it be for stockbroking firms to ride the Net wave? For one, the ease of setting up on-line broking operations is sure to drive down commissions. Currently, Indian broking firms charge an average of 0.85 to 1.25 per cent as commission, which is lower than in many other markets.

The fierce competition in on-line broking and the increase in trading volumes is certain to drive these rates down further. Adds Shankar of ISE Securities: ''The transaction costs will be significantly lower.'' The first clutch of brokers are charging between 0.75 per cent and 0.40 per cent for delivery trades depending on the size of transactions.

Narayan of Kotak Securities expects to see high net worth and active investors registering with not one but two on-line brokers. ''The top 10 to 15 brokers will grab a major share of the market,'' says he. The smaller, or sub-brokers will provide a medium to investors to put through trade. To survive, brokers must specialise, diversify, or face being swallowed by retail banks or sunk by market forces.

Thus, successful on-line brokers may be the ones that are niche providers, aiming their specialised products at highly profitable segments like high net worth active traders or, alternatively, those who decide to become infomediaries, offering a wide range of products and services. Says IDBI Capital Market Services' Rao: ''The winners will be those brokerage houses that provide an entire spectrum of products and services for the investor, and have the technology to scale up their systems to cope with the increasing volumes of trades on-line.''

But the real winner in the cyber-broking sweepstakes will, of course, be the investor who can, more easily than ever before, not only know where to put his money, but when and why. And all of this with just a few clicks of the mouse.

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