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Stockmarket: Wings Of Change

Technology and chatbots will provide more analytical power to customers at lower costs

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Judging from the manner in which brokerages are adopting technology, the ubiquitous smartphone may seem instrumental in turning more people into savvy stock investors. More investors and traders are now punching in buy and sell orders into the 5-inch screen than ever before, thanks to the technological revolution, and, of course, faster mobile networks.

Look at the figures. Mobile trading now comprises almost 4 per cent of the volumes on the stock exchanges — from zero a few years ago. But, this is just the beginning of a new-age digital stock and market investor.

On the anvil, data analytics will soon start analysing your trading habits and portfolios and make specific stock recommendations to you depending on your portfolios. Brokers are now investing in a host of research-backed technological initiatives that can be delivered on a mobile phone or through chat bots that will make you a more well-informed investor or trader.

When Machines Analyse
Brokerages like Yes Securities are using AI and increasing analytical tools (which investors can use). The firm is even launching a chat bot, which will provide answers to innumerable questions and even recommend whether you should buy, sell or hold stocks. “We want to bring technology into the picture on advisory, where investors can get advice on at least 500 researched stocks from us,” says Yes Securities CEO Prasanth Prabhakaran. “It will take over our world because cost of manpower and yields do not fit the business model at this time.”

This is now a new reality for the broking business as costs of servicing clients through traditional models of dealer networks and keeping offices is becoming expensive. Moreover, discount brokerages are driving down brokerage rates further down.

Online Ahoy!
It is a known fact that the broking business has been consolidating for many years now. But the rate at which traditional brokers have declined is enormous. There are just 3,200 brokers now according to Sebi, down a third from 2010-11. The number of corporate brokerages too has dipped by 34 per cent to 2,760. In fact, sub-brokers, who were a last-mile connect between brokers and final customers are fast vanishing — their numbers are down 60 per cent in the last five years.


Little surprise, then, that brokers are fast migrating businesses to online platforms. Some have even re-entered the discount brokerage and purely online trading platforms and have started selling third-party products such as mutual funds. “People don’t want intermediaries in the broking business. They are just looking for a good execution platform,” says Prakarsh Gagdani, CEO, 5paisa.com. “The concept here is that we should offer everything online, no branch, no relationship manager — and make it easier for investors to trade.”

The mobile generation understands this better than anybody else and that is why a whole bunch of pure online brokerage platforms have mushroomed in the past few years. “Mobile was picking up big time, and most people don’t want to go through dealers. The DIY investor is becoming more common,” says Jimeet Modi, CEO, Samco Securities and the Indian Trading League Company.

This is one of the reasons why there are now more mobile traders now. In fact both mobile and Internet trading account for over 17 per cent of trading volumes.

For their part, brokerages are leaving no stone unturned in acquiring new customers. Brokers are increasingly distilling more information and providing value-added services on their platforms, and this sophistication is only set to increase. For instance, technology allows traders to get instant volume analysis and delivery details, useful in filtering more profitable deals.

For some time now, brokers have been opening accounts online without the manual interface right through the desktop application, and now they are taking it further by providing all the value-added information and after sales service, largely through mobiles.

Kotak Securities, for instance, provides a whole gamut of services information from many news sources on their TradeSmart platform. 5paisa.com is providing mutual fund advisory services through their platforms. As technology improves, brokerages are going to add even more value-added services for investors.

In fact, for the broking business the reality of the changing business landscape was evident immediately after the Lehman crisis when volumes shrank and costs began to rise. Over time, this business started to see less volumes and further shrinkage in brokerage rates. So, from rates as high as 100 basis points, they started to shrink to less than 10 basis points now. Discount brokers have also jumped into the fray with a flat fee irrespective of the volume of transactions. All this has meant that the traditional broking model of dealers, sub-brokers is getting disrupted.

“It’s a matter of acceptability of brokerage companies to realise that margins will only keep shrinking,” says Kamlesh Rao, MD, Kotak Securities. “Volume is in place now. Brokerage houses need to keep costs under control. But at the same time, advisory will play a greater role.”

For traditional brokerages, a huge category of expenses has been sub-brokers; besides, the franchise model was becoming too expensive to handle. So the digital embracement in brokerages is helping reduce costs in a large way. In traditional broking, a dealer could handle about 200-300 clients. But, due to technology, which provides in-depth analyses of clients’ trading profiles, one dealer is able to service 3,000-4,000 clients.

Brokerages that focus more on Internet trading are seeing greater adoption of mobile trading. Says Vikas Singhania, Executive Director, Trade Smart Online, “More than 60 per cent of trading volumes come from mobile platforms. Looking at trading patterns, that may go up further.” Brokerages believe that providing much information through technology could lead to more customers down the line. Also it helps scale up a business and increase volumes across brokerages.

Besides, come August, stock brokers will require to state all the charges as actual which include even stock exchange transaction charges that were being charged to clients. This will bring about more openness in brokerage charges. Full-scale brokerages on their part are ramping up their research and advisory services. All the technology adoption in brokerages is geared toward re-gaining lost customers over the years due to inconsistent advice and little or no service from brokerages. Says Prabhakaran, “Let us be honest, the broking business has lost market share to mutual funds because of inconsistencies in the past. We have to get them back.”

That seems to be happening now with investors and traders flocking back to the market. Rao is optimistic that the capital markets looks good for the next three years. And for the customer it is a win-win situation — more analytical power in their hands with lower costs.


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