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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. First half of the FY 2009-10 will continue to remain subdued, whereas business should start picking up in the second half. The following year should also provide steady growth.

At present, our equity broking business volumes are flat and we are doing between Rs. 2000 - 3000 crores daily turnover which represents 5-6 % of total market turnover.

Reliance Money is a well diversified business house with strong revenue streams from Distribution of Financial Products like life insurance, general insurance, mutual funds, card, loans, etc and Over the Counter Products like money changing, money transfer, gold coin retailing, etc. These diversifications were a part of the original business plan put in place about three years back and even before the markets started turning bad in Jan 2008, we were well entrenched in all the other business verticals as well.

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 are a diversified financial intermediary. Besides broking, we are into Distribution of Financial Products and OTC Services. Apart from a diversified product basket, we have also expanded our reach far beyond the metros and large towns of the country. We are currently present in 5,167 locations across the country. We also have extended our reach in the international markets by establishing presence in Nigeria, Gulf countries, South East Asia and Europe.

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

A. We have sufficient internal accruals to take care of our business requirements. Apart from the diversified revenue streams mentioned earlier, we do raise short-term funds, from time to time, through commercial papers.

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. Yes, extensive distribution network spread across the length and breadth of the country is helping us generate more and more revenue by selling a basket of products and services.

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. These are interesting emerging segments with long-term potential. However, in the short to medium term, revenue from these segments are likely to be insignificant, in the overall context of our business.

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. Interest rate futures, credit derivatives and a whole lot of other structured products have potential of providing Indian financial markets significant growth, in the near future. However, these should be exchange traded products and not OTC products. Indian markets are structurally different from the US markets at present and will require different treatment for introduction of these products.

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

A. There has been marginal impact of DMF. Unfortunately, the equity market sentiments turned negative after DMF was introduced and hence full impact of the same has not yet been visible.

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. The stock market is ready for Algorithmic Trading. Indian Institutions may not be yet ready but there are many large foreign players interested in such trading in Indian markets. The market volatility may increase temporarily. But over a long period of time, such trading will ensure efficiency in the markets.

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. These are interesting developments. One has to wait for these exchanges to take shape before taking a call on their impact on the broking industry. In general, expansion of the market should also benefit the broking industry.

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

A. I think this is required now in the Indian context. The two stock exchanges namely; NSE and BSE are very clearly for the large and mid-cap corporates. There is definitely a requirement for SME Exchanges. The need for such exchange has been proven very clearly in US & UK by NASDAQ and AIMS, respectively.

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. We should encourage retail investors to participate in the market by providing appropriate incentives. We should also permit large Indian Pension Funds, Provident Funds, Gratuity Funds, Trusts, etc. to participate in the equity market in a big way. Participation by these players would ensure reduction in volatility consequent upon the entry and exit of FIIs.

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

A. Introduction of small lot size and popularizing option trading may ensure participation beyond the Index and few stocks in the F&O arena

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. In the current form, SLBS is not a workable proposition. SLBS allows activity in scripts which are also available on F&O segments. It doesn’t make much sense for the market players to use SLBS under such circumstances. SLBS should primarily be for scripts which are not available in F&O segment.

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

A. Instead of trying to bring the household savings directly into equity, we should extensively popularize and route household savings towards Mutual Fund, Insurance and other long-term investment opportunities like Pension Fund, Provident Fund, Gratuity, Trust, etc. Of course direct investments should also be encouraged but we have to predominantly rely on the indirect route for bringing such savings to the markets.