BBC had an international poll in the year 2006 involving about 10000 people from 10 countries across the globe. The respondents were questioned on; who they believed would be the world’s top economies by 2026 or in the then 20 year term. A quarter of the participants answered that India would emerge as the third biggest economy by 2026 after China and US. I feel, the poll result is an explicit indication of comprehensive optimism, the world keeping on India’s anticipated but inexorable growth.
http://www.bbc.co.uk/pressoffice/bbcworld/worldstories/pressreleases/2006/05_may/emerging_giants.shtml
As India is rising as the world’s second fastest growing economy, the domestic equity market is also growing not only in the size of capital but in terms of the increasing number of participants. Whatever the short term reactions, I am sure, the inevitable growth is crystal-clear ahead in all respects and the next decade will witness the economical authority of this great nation. Simply, if you have a trust on our market/economy, cautious in selecting stocks to invest and having bit patience, the coming decade will surely flourish your funds.
Today, I wish to discuss on an emerging sector, realized as part of my research to find better sectors to invest for next 5-10 years. I am talking about the Broking sector or the listed equity broking firms in the segment. Its less important whether it is a defined sector in the name by conventional means or comes under any existing conservative sector heads. But, I am focusing the pure equity broking part. Yes, the stock brokers, via millions of investors buy and sell shares and pay the brokerage on day-to-day basis. The anticipated business potential of this sector already realized by our nationalized as well private sector banks and they are focusing the area as one of their imperative business segment. I hope this sector will do wonders for investors in long term as I am forced to consider the apparent growth of this business segment, more pragmatic as well undeniable with consistent reasons. I wish to list few rationales to affirm this point as it must be one of the assured sector, strong enough to bestow good returns to investors in the days to come.
120cr people! hardly 1.75cr equity investors, less than 1.5% of the total population. Try to compare, there was 4.2% of the total US population involved in the equity market in the year 1949. If we take the number of demat accounts as a measurement to count share market investors (direct or indirect), It seems the current figures are zilch, and the horizon is unlimited and appealing. Imagine, if 20% of our population participates in the equity platform in the next 5-10 years and just take this as numbers, its huge and will be near 25cr. I hope some 25-30% of our population may possibly participate in the equity market, directly or indirectly by end of next decade where the percentage stands now is just below 1.5.
The increasing trend in demat account figures showing real pace despite the markets witnessing high volatility during last couple of years. The numbers on both the depositories put together stood at 147.53 lakh as of May 2009 grown to 174.95 lakhs as per the latest data available. NSDL with total number of active accounts at 92.31 lakh as on May 2009 grown to 107.18 lakh while CDSL has grown to 67.78 lakh accounts from 55.22 lakh in the same period. On an average, about 2 lakh new demat accounts are added in the country every month and the trend is ascending. This striking statistics are impressive and the prospects for stock broking business are doubtlessly bright. The lengthy queues at Pan Card opening outlets are also surprising; our educated youngsters are interested in making money effortless or perceptive in the power of equities.
Lower penetration level to the retail investor segment in the equity market compared to developed countries offers a sizeable opportunity ahead to the brokers. Thousands of new investors opening demat accounts every day, recovery symptoms from the downturn and the positive market sentiments attracting lakhs of investors every month. Moreover, India has a positive demographic profile with a large segment of the population under 30. Increasing number of middleclass population, their increasing income level and higher savings rate offers key opportunity for brokers to channelising funds into the equity platform.
The anticipated divestment plans of Govt will probably ignite the flow of retail investors in the days to come. The robust regulatory environment administered by RBI as well the reliable controlling mechanism by Government bodies increases the trust and supports the Capital market to a comprehensive stretch. It seems the long term profitability of broking firms are intact assuming lack of hazardous negative surprises ahead in the domestic as well global economy. The fundamentals of our market/economy seems stronger and indicating further long term uptrend, despite all the possible concerns.
The short term/intra day trading, the fastest income source of brokers is easier than ever because of the dazzling development of communication/IT facet. Unlike earlier, you can enter or exit in a stock by very few clicks on your mouse button or pressing keys on your Cell Phone. You can easily transfer funds from your bank to the broker and vice-versa with in seconds. You can trade in stocks from any part of the globe irrespective of your location. The rapid spread of information technology, modern communication means and active participation of the media in the subject are played an exceptional role in creating the passion of equities to the common man. The automated screen-based trading system using modern technology makes market operations transparent as well error free.
There is hardly any specific season for the broking business or its an year full deal. If the market goes up, they do well, if it goes down, they do better. Simply, what ever you do, you have to pay them and there is no credit. And in our scene, the penetrable customer base is unlimited and it depends how the broker building up their business. Today, broking firms are growing their network at a rapid pace and even focusing in the rural areas. They are more in the way to expand their networks by franchisee route instead of company owned branches in order to keep the cost low. The flexible cost structure, appealing profit sharing ratios and lesser formalities to set up franchisee outlets encourages lots of young entrepreneurs to the zone.
Interesting links
Please refer PWC’s recent research revelations at following link.
http://timesofindia.indiatimes.com/world/china/China-can-overtake-US-economy-by-2020-says-PriceWaterhouseCoopers/articleshow/5482794.cms
Please have a look at following link where Google Trends showing search based statistics of terms. I have placed certain terms related to equity investment such as Share, Equity, share market, stock, stock broker, profit, brokerage etc.. The data is scaled based on the average search traffic of the term we have entered. You can see who people more interested in all these terms…
http://www.google.com/trends?q=share&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=equity&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=share+market&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=stock&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=stock+broker&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=profit&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=brokerage&ctab=0&geo=all&date=all&sort=0
Buffet says “If a business does well, the stock eventually follows” . I hope this business can do well, eventually the stocks.
Few words to youngsters… If you are not yet started investing in equities, you will soon be... and its sure; every one of you will do that… if not now, later with the crowd.
Comment please...
Regards & happy investing
Shabu Thachat
Shabu Sir,
ReplyDeleteNo words to comment for the post. Every Single Word is most important :).
I have one question : Every Main Broker(india infoline, share khan etc.) is Connected to NSE and BSE. What If NSE and BSE open the Facilities same as These main broker. We know that NSE and BSE gives Platform to the main broker and Platform Strategy is Killing Strategy (from s/w perspective : windows and facebook. Apple struggled due to not opening their platform for their OS for developers).
In brokering case I wanted to hear few words from you for the above question. I dont know how this effect to current brokers(sharekhan, india infoline etc). :)
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Indian People will increasingly come to market, they are becoming more fundamentalist, becuase ppl are becoming intelligent, quick access to information, smart ppl like u always there to help ppl, ppl have quick ability to learn, young ppl apply thier thought process : which to buy/which to sell etc. Sooner then later, young ppl will realize that they can earn min 50% yearly then FD/MF/crap schemes. I MY SELF HEARD from my friend that he and his wife want to open Demat a/c (as he told he hated MF/etc schemes) and he want to trade in Wife's a/c (house wife, no tax up to 1.6lk for women if i am not wrong, profit from trade up to 1.6lk is free income :)) and his a/c will be long term. I was surprised by this :) :). If every one does this then WE WILL SEE BLAST... :).
I suggested him Your Book
to read.
Very good Article .. Once again.... Pure Accumulation of data and facts with complete vision of booming/emerging market.
ReplyDeleteAs we know we ll rise like never before and it ll not happen in a month or year which gives more opportunity to cook money to all brokerage houses.
I m lookin for more emerging business nd their impact from ur knowledge bucket.
Dear Mahesh,
ReplyDeleteThanks for the encouraging comment. Please clarify your query as bit confused on the s/w part.
Dear Praveen,
Thanks for the comment and keep reading...
regards
Thanks
Shabu,
ReplyDeleteI have a contrarian view on your thought.
1. Though India is technically "growing" wealth spread is skewed very much here. Poor people are growing, but at a very low speed.
2. People are afraid of directly getting their hand dirty. Though many people from my family are in upper middle class section, they either lack the time or the strength to invest money directly in stocks. They only go via mutual funds route.
3. India has been growing since 90's I would say. I remember that there were 20 million people were investing directly/indirectly in the market pre Harshat Metha scam. However after 20 years in 2010, the community has gone down to 8 million right now. So growth of economy doesn't always map to growth in investor community.
4. I don't have any strong data on this. But I believe people in their 20s - 40s will only invest in market in general as they only have tolerance to losses. So we should consider only those set of people who are placed in medium-high economic zone and have confidence/interest in markets will invest directly in stocks.
5. Everyone talks about aging population in China. The current population is in mid 30s in India which is great. However, most of the families today have 1 or 2 kids today. This trend has reached even the villages now. And I believe it will continue to intensify in the future also. So our population will also start aging and will turn risk averse.
Thanks,
Madan
Dear Madan,
ReplyDeleteI am taking all your points in the same spirit, but Please check again the authenticity of figures at Para 3 of your comments. However, time will prove whats going to be... Thanks for the comments and keep reading..
Hi Shabu,
ReplyDeleteI too agree with your thinking and had thoughts in the same line.... and if we see our big bull (Jhunjhunwala) already took his steps in this direction... may be some years back. This business should do well. As per some reports I read India will be one of major economy not by number of riches we'll have rather by the middle class would grow to 80% from current 40% or so.... and middle class is the backbone for any economy. as Madan said poverty is also increasing.... and Govt should be addressing it soon..... along with inflation... poor is growing big (as per me) because after the green revoluion (5 year plan) we had, we never actually looked at agriculture... and major population of India are farmers or related to that profession. Our population is growing but I doubt if the rate at which our productivity/cultivated land growth matches that. we have lots of work to do in that area as well and I would say that it is another sector which should grow.... to sustain the growth in other sectors.... good fundamental stocks in this sector also could be accumulated at fair prices when ever possible.... MFs are not bad if you dont have time to look at the market... and I would say if the actively managed fund gives you 5% + returns than the index it is good... (even if they charge you entry, exit, management etc what ever charges)... and if u have MF the fund manager have to make buy or sell in NSE/BSE.. which will again fetch the brokerage firm trade charges.... best is if retail investor can get share of NSE/BSE.... :-)
Shabu Sir,
ReplyDeleteYet again a very thought provoking article!!.
Our country should do well in coming decade and be one among the top 3 biggest economies in globe
But ,i see we also face many serious challenges in the way.
1)The countries like US pursues the politics of wealth creation and India pursues the politics of wealth redistribution.In the absence of national wealth, India redistributes poverty and stays poor while the US & others gets richer and richer.
2) US is rich because it works very hard to not only maintain its wealth, but to get richer by the day.India is poor because it is fixated on poverty
3)We still a service oriented country in technology & IT sector , we are happy to called as a offshore destination rather trying to be a next Onsite for other third world countries.We this we immensly depend upon the economies of Rich countries rather than we becoming rich.
4)Politics and Bureacracty is deeply rooted with corruption , which has and will become more & more a dangerous threat to growth of our country.
5)India is facing a big risk interms of water shortage. World Bank has predicted that India may run out of water by 2020 with most cities to run dry.Already we are seeing a water politics b/w AP , Maharastra, Tamil Nadu & Karnataka , this obivisuly will increase more and more.
I am sure, there are more ways we can face threat in future, but will we come out winning with all these things and will our economy survives is something time can tell... :)
At last , article on India by Jim Rogers (http://www.jimrogers.com/content/stories/articles/india.html) certainly seems exaggreated in some way, but few things are serious real threat we face
regards
Venkat
Dear Young@market & venkat,
ReplyDeleteThanks for the comprehensive and thoughtful comments. I wish,hope and prays on the prosperity of our great nation despite all negative concerns..
Sir,
ReplyDeleteThanks for the article. I am sure that more and more youngsters will be attracted to equity market in future. Even though many listed companies from our state gave multi bagger returns in last 1 year, our state is not investor friendly. Now a days NRI malayalees are putting most of their savings in bank FD. I am sure many of them start thinking of equities as there is no safe investing opportunities in our state.
Even now some stocks related to broking firms are trading at through away prices. I don't think there will be any impact if NSE and BSE facilitates as same as broking firms do as even though CSE( cochin stock exchange) does same thing as other broking firms, their business is not impacted. But I have doubt about banks providing free demat account for their clients. Banks can provide service with lesser brokerage charges than other broking firms. Also as people are becoming more and more bullish on equities, more companies are entering this sectors. New brokerage firms are encouraging online trading to save money for appointing dealers. But it is difficult for old brokerage firms to reduce dealers. The main advantage of brokerage firms is portfolio services. But for portfolio services it is better to depend on experts like you than brokerage firms.
I was trying to post some merits and demerits of brokerage firms. But I always value your findings more than my thoughts.
Dear James,
ReplyDeleteThanks a lot for the comment. Comptetition is there in the sector, but the customer base is also unlimited. Whoever manage to penetrate the middleclass community will head the race... Keep reading
Thank you Swati..
ReplyDeleteExcellent Article Shabu
ReplyDeleteMohit
Thank you Mohit..
ReplyDelete