MUMBAI: India’s embrace of stocks is starting to spread to the hinterland, according to data provided by India’s stock market regulator on trading patterns at the country’s two main exchanges, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Shares traded by investors in Mumbai, as a percentage of turnover in BSE, has fallen to a new low of 75.1% by 2006, down from 84% in 2002. It is not just Mumbai— India’s financial capital. Growing number of investors in non-metros and smaller towns has meant that the overall share of the top four metros in India in trading has fallen to 81% from 86% over the same period. The data is based on the exchange’s cash segment, where shares are paid for at the end of the settlement period.
Data from NSE, at first sight, contradicts that from BSE. Here, Mumbai’s share grew to 52.4% in 2006 from 40.2% in 2002, and that of the four metros, from 72% to 80%. “This apparent contradiction can be explained by the fact that NSE has more institutional investors as it has a stronger derivatives business. BSE, in contrast, is dominated by retail investors,” said Kedar Deshpande, vice-president of ICICI Direct, an online brokerage. The derivatives segment deals with trading in futures and options, essentially bets on which way a stock will move in the future, and is dominated by institutional investors.
On BSE, the share of investors from cities such as Rajkot, Ahmedabad, Bangalore, Indore, Jaipur, Patna and Ludhiana has grown more than three-fold, although on a smaller base. And even the data on NSE shows growth in unexpected areas. The number of trading accounts from Arunachal Pradesh, Assam, Himachal Pradesh, Tripura, and Nagaland, doubled between February 2004 and August 2005. Data on the number of accounts in 2006 was not available.
While the investor base in India’s stock markets is still small, between 1% and 3% depending on the estimate, it has grown as per capita income has risen to Rs31,588 in 2006, from Rs20,650, in 2001.
But the biggest reason for the spread of the equity culture is soaring returns for shareholders on India’s stock markets. Between April 2001 and March 2006 the Sensex, India’s leading stock market indicator, rose to 11,500 from 3,600 points. Since then it has gained a further 2767.18 points and closed at 14,267.18 points on Thursday.
Investors’ wealth, as measured in the market capitalization of the shares, during this period has grown nearly six-fold, from Rs5,71,553 crore in April 2001 to Rs30,22,190 crore in March 2006 and Rs35,55,163 crore in January 2007.
Another equally important reason behind the spread of the equity culture is vastly improved market infrastructure and better communications .
Over 600 cities have electronic trading, or demat accounts now, up from 240 cities in August 2004, according to data from the National Securities Depository Ltd, a central warehouse for keeping share certificates in electronic form.
The NSDL also had accounts from 19,100 pin codes, across India in August 2006, up from 18,300, in August 2004. A pin code is a postal sub-division.
Last month, when Kantilal Chaganlal Securities opened a branch in Kappadbhanj, 40 km from Khambat, in Gujarat, it expected demand to be tepid.
“I was surprised to see that there were more than 500 people sitting in the winter, till 11pm, for our informational session,” says Jayesh Seth, managing director of the Bombay-based brokerage. All of this has meant that stock brokerages are now investing in setting up more branches in small towns. More than 60% of all new accounts set up at Geojit Securities, a Cochin-based brokerage, come from rural areas.
Brokerages now distribute informational materials and do educational sessions in several Indian languages, including Malayalam, Tamil, Gujarati and Kannada. “Rents in big cities are getting very expensive so we prefer to expand in smaller towns,” says CJ George, managing director of Geojit Securities.