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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 Indian equity story over long term continues to look good and exciting. Only a small percentage of the India saving population invests in equity. As the Indian economy stabilizes and starts going back into the growth trajectory, investors; both existing and new will opt for equity investments. Since the penetration of equity as a product is still shallow the size of the market will grow manifold. We see this as a good opportunity for broking firms.

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. At Kotak Securities, we have always taken the initiative to introduce and offer various investment products to our clients. Besides broking, mutual funds, insurance and other normal investment products we have now offered our investors option to invest in currency derivatives and access to invest in international markets through robust international trading platform. We will continue to focus and ensure we make available basket of financial products for our clients keeping risk and return in mind.

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

A. At Kotak Securities we are adequately capitalized with a net worth of over Rs1, 200 cr. Hence capital has never been a constraint for us to grow and expand. In the current scenario broking firms like all other businesses who need to raise capital will find it difficult and have to find alternative sources like private equity.

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?

A. Kotak Securities has over the last five years expanded its reach to all the major cities and towns in the country. It has presence in 297 cities and towns with more than 740 outlets. Besides our website, kotaksecurities.com also allows clients to access and use our services online efficiently. The extensive distribution network definitely helps us to acquire and reach out to the investors across the country.

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. Currency futures and interest rate futures are larger than equity markets in developed markets. We see these markets growing manifold in the years to come. We are investing in acquiring and sharpening knowledge in this segment to provide better service to our clients. We think these segments going forward will be a major source of revenue for the broking firms.

Q. After forex, what are the next line of products that could have the possibility of growth and development in the Indian market? What are the hindrances in introducing globally popular financial products in India?

A. After forex we think interest rate, derivatives and structured products have a possibility of growth and development in the Indian markets. Full convertibility is one of the key hindrances in introducing globally popular financial products in India.

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

A. Besides execution, brokers also provide research, trading ideas based on the ground feel of the markets. Direct market facility is more towards ensuring ease on execution especially when it arises out of program trading. Institutional investors seek for services besides execution and brokers will continue to play an important role in this.

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. Indian stock exchanges have always been leaders in using technology for trading. Our electronic exchanges are very efficient and provide proper and sound base for introducing Algorithmic Trading. Introduction of Algorithmic Trading will attract new set of investors and will improve the overall depth and efficiency of the markets. It will help in introducing various products to the investors with different objectives. However, because of its trigger based trading it can at certain times create high volatility.

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. New exchanges focusing on various segments will provide opportunities to the real industry to hedge and manage the risk efficiently. As the volume and depth in these exchanges go up it will also set the background for broking industry to introduce besides simple broking, other structured products in these segments for its clients. It will definitely help the broking industry to utilize knowledge, infrastructure and resources more efficiently.

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

A. SME Exchanges will definitely provide Small and Medium Enterprises (SME) access to capital markets which is substantially denied to them. To roll out SME Exchanges and make them a success will be a challenge. However if we are able to launch and attract both issuers and investors to this exchange it will be a real boost to raise capital for SME’s in India.

Q. Our stock market lacks depth which is evident from recent correction in the market upon exit of FIIs. What policy measures are essential to address this problem?

A. The depth in Indian markets have definitely improved manifold in the last 2-3 years. Futures and Options segments have further helped in improving the depth. The exit of FIIs in the market has resulted in high volatility and sharp correction in the market but this is a phenomenon which all global markets have witnessed. As Indian institutions like mutual funds, insurance and going forward pension companies grow in size; they will provide the necessary cushion to the volatility arising out of FII investment/disinvestment.

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

A. The Liquidity in F&O is concentrated in few stocks and indices. Over a period of time we will find this being broadened as more products are introduced and more investors start participating in the market. The recent initiatives in the options side by the exchange have definitely improved the market depth for options in indices.

Q. What are the essential ingredients to make Securities Lending & Borrowing Scheme (SLBS) a success? Please elaborate on a few pros and cons of SLBS with regards to the Indian markets?

A. SLBS has not found favour with investors basically as it is not structured to meet the investor’s objective. SLBS should not have restrictions on period of borrowing and lending. The margin system has to become efficient to reduce the cost. One needs to look at few private players besides exchanges who can offer this facility as it gives flexibility to the investors to opt for it any time during or after market hours. The SLBS which was introduced and operated for a short duration in the past before the current exchange based SLBS was introduced, had seen traction basically because of the flexibility and easy accessibility provided by the SLBS service providers.

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

A. Indian household savings has definitely seen improvement of allocation in equities. With Indian Mutual Fund and Insurance finding acceptability and getting popular among Indian investors the percentage of savings to equities will keep going up. Besides the new generation youth of India whose earning potential is high will allocate more towards equities. The government and all the participants need to continuously take steps to improve the confidence level of the investors and increase investor awareness. As the investors confidence in the Indian markets keeps growing and the advantage to invest in equities over a longer period is realized one will definitely see higher allocation of Indian household savings to equities.