Allow investors below a certain threshold, say Rs 50,000, to invest if they have a bank account. RAVI VARANASI, CHIEF - BUSINESS DEVELOPMENT, NSE
Investments from Tier 2 and 3 cities are trickling into the markets. Newer investors are more keen on long-term investing than trading, says Ravi Varanasi, Chief - Business Development, National Stock Exchange. Excerpts from an interview:
Retail participation in Indian stocks seems to be declining. What is NSE’s experience?
We are seeing a rise in new investor registrations. Every time a new client registers with any broker, the exchange has to be intimated. We capture this in terms of new PAN numbers. We have seen 10.5 lakh new investors in the last financial year. The additions may have come down but there are new investors coming in, for sure.
One reason for number of investors coming down in bigger companies could be that institutional investments via mutual funds are rising. We see a significant interest in systematic investment plans and brokerages are promoting these plans quite actively. I think a good way to encourage retail participation in the markets would be to allow investors below a certain threshold, say, Rs 50,000, to just begin investing if they have a bank account. With a small threshold, the scope for misuse is really limited. Many Internet brokerages are now, in fact, making an appeal for a simple online way to open a brokerage account.
What has been the response to the RGESS?
It has had reasonable response but investor additions have not been very big so far, partly because the scheme kicked off towards the end of the fiscal year. We have reached out to a large number of investors. The NSE actually set up stalls in 15 suburban railway stations in Mumbai, Baroda Staff College, the Sealdah station and other centres, to explain it to investors. The stalls attracted large crowds. But the scheme is also seen as being a little complicated.
Any change in the profile of investors compared with five years ago?
We see a larger number of investors coming in from Tier 2 and Tier 3 cities. Plus, we see that a large number of them are not traders but are actually interested in long-term investing.
Illiquid stocks have been moved to a new call auction window. Has this helped curb price manipulation in such stocks?
The call auction mechanism helps in better price discovery by concentrating demand and supply for a stock, within a specific time window. Focussed attention on these stocks at preset times may increase liquidity. One suggestion from the market participants is to have the call auction just one or two times in a day, during a not very active period for the markets. Feedback from market players has gone to the regulator.
Do brokers conduct real-time surveillance of their trades to check manipulation?
Most brokerages pre-screen their large trades before they are fed in. Dealers have specific instructions to ensure that trades that exceed certain filters are to be reported. This is supplemented by end-of-day reports on any exceptional or unusual trades. What brokerages find difficult to check is if the two parties to a trade are colluding and are acting across different exchanges. Effectively though, brokerages are conducting surveillance, exchanges are doing it too and so is SEBI. This three-stage process tends to ensure a fairly high level of security for the market ecosystem.
Though Qualified Foreign Investors are now allowed to invest in domestic markets, there haven’t been very large inflows. What are brokers’ concerns on this?
The main issue seems to be tax-related. The intermediaries — Qualified Depository Participants — have been tasked with many obligations which they are uncomfortable with. For instance, there is a concern that they would be treated as assessees-in-default for tax obligations of the investor. Notices on tax can result in high legal costs too, which they perceive as a risk. Therefore there is some amount of reluctance from QDPs to market the product actively. Now that the K M Chandrashekhar committee is looking into the entire gamut of foreign investments, these issues may be studied in combination with the Shome committee proposals. I think once the tax and access issues are addressed, the route will be popular.
The QFI route offers significant possibilities for India.
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