|CURRENT ISSUE NOVEMBER 22, 2004|
|MONEY TODAY: EQUITIES|
|Many Happy Returns |
Better regulation and technological advances have changed the way capital markets function in India. And retail investors are returning with a renewed confidence.
|By Malini Bhupta|
Ajay Kapur peers intently into the computer screen, presses a few keys and clicks the mouse. "I just placed an order for 200 shares of Tisco at Rs 275," he smiles. Kapur has a Net trading account with Kotak Securities and can even place buy and sell orders on phone if he doesn't have Internet access. Since his demat and savings accounts with Kotak Mahindra Bank are linked to his trading account, the whole transaction takes place seamlessly. Shares bought by him get transferred to his DEMAT account and the money is debited from his savings account. When he sells, the shares are debited and the funds credited to his savings account.
It wasn't so simple 10 years ago. "It was a supplier-driven market where the brokers called the shots and charged hefty commission of 1-5 per cent of the transacted value," says Motilal Oswal, chairman of Motilal Oswal Securities. Worse, Kapur was completely at the mercy of his broker's scruples. "There was just no way I could find out at what price my broker bought shares for me," he recalls. Only after trading closed did his broker give him the details of the transaction. So what if Reliance had slumped to Rs 180 at mid-session, if the broker said he bought at Rs 190, so be it.
Technology has lifted the veil of secrecy from the stockmarkets. With the computerisation of stock exchanges, brokers don't holler out rates in a trading ring. Instead, they execute buy and sell orders while sitting in the comfort of their offices. And there is transparency for the investor. Now most TV channels and financial portals broadcast stock prices through the day along with news snippets, allowing investors to make informed choices and time their decisions.
The dematerialisation of shares is a significant step for the small investor. In the physical era, shares could be bought and sold in lots of 100. Any other denomination-say 25 or 50 shares-meant it was an "odd lot", shunned by the market and sold at a lower price. Today, even one share can be bought and sold in electronic form. The time taken for delivery of shares too has been crunched from several weeks earlier to two days now.
There have been many other investor-friendly initiatives in the past few years. Earlier, in case of a broker default, there was no investor protection or redressal mechanism. Today, the Trade Guarantee Fund protects investors against any such practice.
The primary market too has seen significant improvement. Earlier a lot of good companies stayed away from the stockmarkets as the pricing was governed by the Controller of Capital Issues. Today the market decides what premium it will pay for a scrip. Disclosure norms have also been improved so that dubious companies cannot tap the markets. "Our IPO disclosure standards are world-class," says SEBI Chairman G.N. Bajpai.
Stringent regulations have also made the markets unviable for fly-by-night brokers because their books are monitored on a real-time basis by SEBI and the stock exchanges. Several large brokerages, like Kotak Securities, IL&FS Investmart, ICICI Securities and HDFC Securities, who can provide better services and research-based advice, are now increasingly targeting the retail investor. Kotak Securities, for instance, has a comprehensive package for retail investors, ranging from portfolio management for high-net worth individual to advice on IPOs for the small investor. Says Narayan S.A., CEO of Kotak Securities: "If we facilitate the retail customer by taking over operational hassles he will be more willing to invest." The broking house-which has close to one lakh registered retail clients-has offline and online trading facilities. Adds IL&FS Investmart's chief investment officer, Sharad Shukla: "Large brokerage houses are focusing on the retail sector as it is growing at 50-60 per cent." One indication of the increased interest in stockmarkets is the number of demat accounts opened after paperless trading became compulsory. There are 60 lakh DEMAT accounts. Even if we consider that 20 lakh people have multiple DEMAT accounts and 10 lakh accounts have no shares in them, there are still 30 lakh active investors in stockmarkets.
Despite all the improvements in the Indian stockmarkets one fundamental rule of investing hasn't changed-stockmarkets aren't and shouldn't be the primary investment avenue for small investors. However well regulated and transparent market operations may become, share prices are inherently volatile. Knowing the right time to buy or sell shares requires awareness and time commitment that most working people find difficult to take out. So invest only so much in shares that you can afford to lose. And having invested, keep a close watch on the price of your shares.
Besides, lots of system improvements are still to take place. For instance, while brokers are aggressively expanding into the hinterland, banks have not kept pace with online operations. Many banks still don't want stockbrokers as their customers. Says BSE broker Dina Mehta: "Banks still have the scam hangover." And so do many small investors who have burnt their fingers courtesy the Harshad Mehtas and the Ketan Parikhs. Surely the capital markets are less prone to scams today than they were in the past, but that alone doesn't guarantee good returns.