`Next bull run will see more Net players'

Rasheeda Bhagat

INTERNET trading, a product of the bull era, is a little subdued now. But the next bull run will see more players on the Net, says Mr C. J. George, the Kochi-based Managing Director of Geojit Securities, the retail brokerage that has 68 branches across the country.

Excerpts from the interview:

As a retail brokerage how many investors have registered with you and how many are active?

Around one lakh. Last financial year, about 34,000 clients traded.

Do you see the number falling further as the sentiment is quite low.

As of today, yes.

You were the first to introduce online trading in India. What triggered this decision?

We understood the difficulties of the retail investor.

What are these difficulties?

During the peak market times, we had 30-35 telephone lines -- today we have 65 -- and all the lines would be busy and clients complained they could not reach us, even after trying repeatedly. They get frustrated and we lose business. So we thought of online trading for those who have the Internet facility.

Another reason is that we have around 6,000 investors in West Asia.

What is your brokerage for Net trading?

We charge 0.75 per cent for delivery-based trading and it is 0.4 per cent for the Net.

What is your overall experience in Net trading? Why has it not grown in India?

This is a by-product of a boom market. In the 1990s, America saw a revolution in Internet trading in terms of volume due to the bull run from 1992 to 2000, which made it difficult for people to reach their brokers by telephone. But today if you call up a broker here, instead of one, two dealers will attend the call! But in the next bull phase you will see more people trading on the Net.

But is there not the danger of being impulsive and punching in an order that one might regret later?

Of course. If you get your broker on the line, you would talk to him about the condition of the market on that day.

But are not brokers more interested in getting business than advising their clients!

What does `advice' mean in our context? Generally clients call and ask us: How does the market look today. And we tell them there is institutional activity and the market has gone up or down. Thus, they get a feel of the market on that day. The advice is not to buy or sell. It is basically an explanation of the day's environment/activities.

Can you tell us about the procedure of Net trading? The paper work is totally eliminated. But what kind of financial arrangement do you have with the client? Is a bank involved?

We have an online interface with HDFC Bank.

So do all your clients need to have an account with HDFC Bank?

Not necessarily. Clients can give us an advance. The only problem is that if there is not enough of a margin, they will not be able to trade.

Are you very strict about margins?

Yes, on the Net you have to be very strict because you are dealing with a faceless investor. So the margin is very necessary.

What kind of margin do you impose?

Thirty per cent. A client can trade for three times the amount with us. Without the margin, the trade will not take place. In the case of online interface, if the client has an account with HDFC Bank, and he punches in the order, the system will tell us whether the margin amount is available or not.

Supposing somebody sells 100 shares of HDFC Bank and wants to buy 100 shares of something else, can he do it immediately?

Yes.

How do the shares get delivered and transferred?

We were one of the largest broker depository participants in the country right from the beginning. We have 65,000 investor accounts in the depository.

What percentage of your clients take delivery?

Currently, about 40 per cent. Before the rolling settlement was introduced, it was 15 per cent delivery-based with 85 per cent being traders.

But surely your volumes have fallen in this lacklustre market. What is the percentage of fall, compared to boom time?

If you mean the pre-Budget boom, from around Rs 70 crore, the value of the daily turnover has fallen to Rs 10 crore in the first week of July. It has now gone up to Rs 20-25 crore. We have recouped some of the losses in derivatives trading, where we are one of the biggest players.

But is this popular at all?

Oh yes. We are doing a turnover of Rs 5 crore a day, and account for about five per cent of the market share on the NSE in derivatives.

Is it safe for investors?

It is.

But have people understood what derivative trading is all about?

Yes. We are on the job of training. We have done about 225 investor conferences in the country, at our branches.

In your opinion, should badla come back?

No, it should not.

So you are happy with the new system though most brokers are not and are crying...

That is because of their misunderstanding. Badla used to give the carryover facility and that facility is available in the derivatives segment. People who are not willing to study the new system are the ones who have a problem. It is not the system's problem! Second generation or family brokers have a difficulty in changing. They refuse to learn what is happening in the industry, country or elsewhere.

In the derivatives segment, we find that the major initiative has come from the new-generation and corporate brokers.

Ultimately, do you see only the bigger brokerages surviving?

Yes. I do not see more than 100 brokers surviving in the country in the next two years.

How many do we have at the moment?

Registration-wise around 8,500. And there are so many smaller exchanges with 500-600 members.

This is an era of scams and frauds. What is the guarantee for a small investor that either Geojit or any other big brokerage house will not disappear or default tomorrow? Do you think investors are taking a chance?

Absolutely not. We have been in this business for the last 15 years, so there is a track record. Also, investors pay a slightly higher premium for our services compared to those of our competitors. Investors who go to a broker who charges the minimum or thinnest possible brokerage, are taking a risk. They should understand the track record of the firm and even study the brokerage's balance-sheet.

Today the investor just goes to a broking firm after seeing an advertisement or canvassing. They should ask for the balance-sheet. At Geojit, this is available at every branch and any investor can read it.

But how many investors do that?

This is because many brokers do not make the balance-sheet available.

But then is not investor education and awareness lacking in this country?

Yes, and the people who venture into investor education will survive.

But do you think Indian investors are willing to pay more for valuable service?

Not today, but things are changing and possibly two years down the line it will become a kind of wealth management consultancy.

Do you track the portfolio of your bigger investors and warn them if you think they are going off track or into dangerous ground?

We do.

How many follow your advice?

In this particular aspect, they do not. But eventually, I think that is the way the market will go. People will come to us and we will give them advice depending on their age, risk and income profile and tell them please do not buy this share. To a retired person we always say: Please do not put your money into equity.

What if they do not listen?

Once they start losing, they will change.

One has heard of VRS candidates blowing away their money in the market. What about students... do they trade with you.

Some pursuing professional courses and some with money do trade with us. We do have a large number of youngsters who are trading and we do not discourage them because we feel that those below 30 can take some risk and invest in equity.

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