BackConsumer expectations have changed over time
In terms of the kind of advisory they look for has changed. The level of awareness has also gone up.
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Equity markets have been volatile and debt markets have seen erosion as well. This has made retail investors jittery. B. Gopkumar, executive vice-president and head of broking, Kotak Securities Ltd, talks about how the broking business is doing in the current environment and how domestic and overseas investors have reacted. He also talks about some of the changing trends in investment patterns, consumer expectations and technology challenges faced by brokerages.
Markets have been volatile for some time now. Has it affected the broking business?
As we are also part of the financial services space, we have seen some difficult times. When we talk especially about the capital markets and the broking business, in the last five-six months market volumes have been dropping in terms of retail participation. Though volumes have picked in the last few days but I don’t think retail participants are back in the market. There is no real large incentive for retail participants to come back. But if we talk about HNIs (high net worth individuals) or large client base, we have seen some picking up in the locked-up portfolios. That has been consistent and cash market volumes have gone up. That is how the brokerage industry looks like in terms of business. So we are really affected in terms of volumes. In terms of pricing, the market has been stable when it comes to brokerage rates.
Retail investors have lost confidence as both equity and debt have been hurting. What are you doing to make them come back?
We are at a critical stage where most asset classes are going through price discovery and equity as well as debt has shown negative returns. People are really shaken and not sure whether to put money in bonds or equity taking into account one-year returns. So there is a lack of confidence. Even their mutual fund portfolios have given negative returns. But if you look at the bull market period of 2003-08, retail participants usually come in at the last leg of the market. So we are focusing on product structure and a lot of research is going into it to improve products. We are focusing on making the already registered client base active and we are in the process of coming up with a couple of more products by next month. Lastly, we are creating technology platforms where investors are comfortable to trade. We are also working on bridging the knowledge gap as the expectations of client and market behaviour has completely changed.
In what way has it changed?
The risk appetite of the client has changed since 2008. Also client expectation and profiles have changed as we have new set of investors coming to the market which is typically in the age group of 25-30 years. Their expectation is that they require good technology to handle in terms of mobile or desktop applications. Also in terms of the kind of advisory they look for has changed. The level of awareness has also gone up. We get enquiries whether they can do algorithm trade or use certain models. Execution has become more technology driven now. So broking houses which are working on these aspects should do well.
In terms of investment choices or product innovation, has that also undergone a change?
Product innovation in the broking business has some kind of restriction because of the regulations. If you look at coverage reports they are now focusing more on large-caps. Earlier they were focusing on mid-cap stories but now they have no place in the market. That is also a change in the way clients are looking at the markets today. So people have become cautious. Also the volume constraints have changed. The futures and options market has become very active and a lot of leverage is happening. The interesting thing is that this has also happened for the retail investors. When we got our mobile application three years ago, our perception was that retail participation will be there in the cash market. What we found is that a substantial amount of trade by retail customers was done in futures. There are various reasons for it. The level of understating of the market has gone up and people are doing futures because the available volumes are more but people don’t understand the risk-return of leverage.
How did the non-residents Indians (NRIs) react when the rupee depreciated as they had more money in rupee terms to invest?
There has been a trend which is very clear. We have seen in the long-run NRI portfolios, especially in the cash market side, some activity in the last few days. Savvy NRI equity investors are back in the market. I am not saying they are coming in hordes and buying in India but they have started building their portfolios especially on the frontline stocks.
How have been mobile and online trading doing?
What we understand is that building different applications on different platforms is difficult. As technology changes, you need to change the interface across platforms and the technology is changing fast. The biggest challenge is that the technology is not stable. What we are doing is work on the technologies which are expected in the near future.
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