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Q.  Broking industry in India which witnessed rapid growth during the period 2005-07 experienced sharp correction in 2008. How do you foresee its growth in the next two years and in specific how is your firm adjusting to the correction?

A. The positive growth of the Indian economy amidst recession in some of the most progressive economies is undoubtful. The correction that we are noticing now is a typical business cycle and needs to be viewed from a slightly different perspective. An analysis of all past corrections will clearly depict a trend and we are confident that the markets are approaching the end of this particular bear phase. The financial services sector has to grow and its growth trajectory cannot be compared to that of the matured western economies. There are host of factors favoring a strong growth of this sector in India some of which being a low financial literacy, low penetration, huge infrastructure development potential, etc. Most of the growth seen so far was from existing markets. We believe that the next round of growth would come from newer markets besides a heightened activity from the existing markets. We at Angel are keen to make the best of these times to try and consolidate and enhance our market share in all product verticals or at least, set up ourselves for that so that when the time indeed arrives and sentiments improve, we should be there to wrest full advantage of the situation.

Q. Are you considering diversifying your product portfolio? What are the new products and services that you consider would help in diversifying your revenue streams?

A. We have already started with our third party distribution business with three products:

We have also very recently started with distributing credit cards and Fixed Deposits for HDFC bank. We are also planning to diversify into institutional broking in the coming year.

Q. In the absence of strong primary market sentiment, how are the broking firms raising capital for expansion? What are other alternatives sources?

A. In the current market scenario, the dire need to raise funds does not exist. Most large brokerages have raised capital recently and we believe that those funds should be sufficient for now. When the market sentiments improve, activity in the secondary market would improve but in a gradual phase, leaving sufficient time to raise funds. We at Angel have sophisticated MIS systems through which, we are able to reasonably predict the future market direction and hence, plan for our resources. Currently we are not leveraged at all.

Q. Nationwide Distribution network has been an important aspect of growth for broking industry. Is extensive distribution helping you tide over the pressures of declining business?

Our customer acquisition has remained very robust. Even in these market conditions, we are acquiring close to 15,000 clients in the broking and about 5,000 clients in the third party distribution. We have also observed that the newer clients’ contribution to the revenue is higher which clearly indicates the fact that a strong distribution network is a must to be successful in retail. However, just by having the network would not suffice if the consequent control and monitoring mechanism is not in place. Over the years, we have developed extremely useful monitoring mechanisms that enable us to track the progress and correct deviations if any, well in time. Besides this, we have one of the largest networks of business associates that have maintained a steady revenue flow too.

Q. How do you see the prospects of new market segments like currency futures and interest rate futures in terms of major source of revenue?

A. As there have been no currency futures trading in India, companies were hedging their currency risk by entering into forward deals with banks where they agree to sell/buy the dollar at a future date and predefined exchange rate. As compared to currency futures, this method is less flexible, less liquid, and less transparent, therefore does not help companies fetch the maximum possible price. With the beginning of currency futures exchange, we shall see a lot of companies diverting their hedging towards the exchange for better prices. Also since the minimum contract size in USD 1,000, it shall help small traders to hedge their dollar exposures. With such a scenario in place, we see a lot of potential in this new segment and believe that in near future it shall be a major source of revenue for us.

Q. How will the Direct Market Facility (DMF) approved by the regulator for institutional investors impact the equity broking industry?

A. We do not consider this step by the regulators as regressive for the broking industry. On the contrary, this measure would restore confidence among the Financial Institutions. Despite this step, institutional investors will continue to rely on the equity research of these broking houses.

Q. Do you think Indian stock market is ready for Algorithmic Trading? In terms of revenue how will Algorithmic Trading change the industry dynamics? Please elaborate on a few pros and cons of algorithmic trading?

A. With the implementation of Algorithmic trading, the greatest advantage would be unbiased trading with least cost impact in terms of operations. However, the flip side is that the spread between bid and ask prices of stocks would narrow further since the trigger could be set at any levels that an investor may be satisfied with and if an investor is conservative, he would settle for a lower spread too. With the implementation of algorithmic trading, differentiation between any two broking house would not exist.

Q. How do you see the emergence of new exchanges like SME, Indian Energy Exchange, MCX-SX etc in the country? How do you see the benefits of this flowing to the broking industry?

A. With the increase in number of exchanges, more and more trading and investment opportunities would get created and in turn would generate a higher revenue for the broking industry. This would also guard against any monopolistic advantages that an exchange is able to derive currently. This will create more competition thus leading in better and cost effective service to the broking industry.

Q. Y our opinion on formation of a separate SME Exchange? What benefits can it offer to the existing mechanism?

A. This would provide a very useful platform for small and medium enterprises (SME) and thus opening up another avenue of raising cheap capital. This will in turn, reduce the cost of capital of these companies and in turn foster a better economic environment for the country as a whole. An exchange of this nature will remain focused to one segment of the industry and hence, these enterprises (SMEs) would derive better comfort.

Q. Liquidity in F&O is concentrated in few stocks and indices. What needs to be done to improve market depth?

A. The list of stocks trading in F&O segment, for example, Shree Cements, Info Edge, Redington, Pfizer etc, have trading volumes of less than 10,000 shares on a normal day on both the exchanges. These stocks do not justify being a part of the F&O list and hence we have less liquidity and more chances of manipulation. To improve the market depth the best and long term solution is to educate the investors.

Q. Negligible portion of Indian household savings is invested in equities. What can be the long term remedy to increase the participation?

A. This problem needs to be addressed by dividing it into two sections a) How to channelize investable surplus in equities and b) Whether there is an investable surplus in the first place. The first section can be addressed by enhancing the level of financial literacy of this class of investors. Even today, more than 70% of savings are invested in fixed deposits and provident funds. However, adequate education is not provided on equities as one of the most rewarding asset class if invested over time and systematically. We are of the opinion that the exchanges, regulators and financial services companies should come together and devise a strategy of spreading this knowledge.

So far as the second section is concerned, it’s a more macro-economic concern than anything else. Out of close to 321mn individuals who have cash incomes, only about 188mn individuals are able to save. Better infrastructure and amenities will create more socio-economic well being. Therefore, to talk about taking the financial literacy to small villages and towns would be a folly unless the people do not have investable surplus.