Monday, August 15, 2005

Online share trading in India

Share trading in India, until the arrival of online brokerages in about 2000 or so, was like driving on Indian roads. It was a familiar story of might is right, big trucks (brokers) ruled the market and there were potholes and pitfalls in the shape of bad deliveries, dishonoured contracts, fakes and what not. Unlike the highways, which have remained out of the reach of the aam aadmi, the share market has changed. Somewhere in the nineties there was a whole move to make shares electronic and fungible (like currency notes, a share is a share) and move them to the dematerialised (demat) form. Slowly, from the physical world, shares moved into the digital world at the NSDL. Then, trading became electronic. First it was a few of the blue chips, then it was most of the blue chips and slowly it has taken over most of the market. New issues are today, exclusively electronic. If digitisation took care of the back end, it has also made life easy at the front end.

In the physical delivery world, one had to talk to a broker who told you the quotes. There was no way of knowing if the quote was right. There was no way of knowing if your trade was made, especially if you made a good call (Bad calls, almost inevitably got made). The broker could say, that this was the best price I got and nobody would be wiser. You would not know if the shares came from his account or from the market. You would not know if the shares were fake or unsigned, as it happened sometimes. All this and more were true for the small investor. Odd lots (which were inevitably awarded during splits, mergers were as good as stocks which would never got sold or the broker would purchase them at a price way below the market price.

Now with HDFC, ICICIdirect, Sharekhan and the other brokers, share trading in India has gone online. Starting at about 2 pct, online trading forms about 10 pct in terms of volume (I think the figure is higher than 10 pct in the retail segment). Some of these have gone on to become the biggest "brokers" in India. It has opened the market to a whole segment of people. Earlier, investing in shares was done by a limited few most of whom applied in an IPO and stuck with the shares till they wanted money. Now, not only has online trading made life easier for these people, it has opened up investing and trading to segments that never before participated in it. By my rough estimates during my experience in Indias tech industry about 70% of employees are have online active trading accounts, many of which were opened in the ESOP era (seems like a long while back). More than 80% of these investors are active traders; the number of day traders are less. But a small chunk of these also dabble in the futures and options market. Besides this obvious segment which is connected to the online world all day long from their cubicles, there are other segments which have shown interest in trading due to its ease. Housewives, retired professionals and even small businessmen. What was hitherto a male dominated sphere also has quite a few women into trading. The regional stock exchanges which were the way to route trades in the olden days, are now almost defunct with BSE and NSE ( NSE more than BSE) holding sway. Earlier investors were mostly from the bigger cities. With online trading, it has opened avenues for investors from all parts of the country with an internet connection. A few months ago, Businessworld (Registration/subscription reqd) India reported that:
46 pct of the trades were done by the top 100 brokers in 1996-97. Today it is about 64 pct. 90% of online trades are by the top five in the business ICICI Web Trade (owner of, HDFC Securities, Sharekhan, Indiabulls Securities, Karvy Consultants, IL&FS Investsmart and Motilal Oswal.

Going online via these professional services driven by technology is a great way to cut the uncertainities caused by the middleman out of the business of share trading and make lives easier for the investor. There will be more competition in this space as brokers try to take over accounts of other brokers. More specialised and personalised services will be in the offing as the market expands and as smaller brokers try to survive and evolve into niche players.

Update 17Aug: ICICIdirect, one of the biggest online brokerages has been pathetic over the last few days. In fact today, it did not let many of its users trade. Whats the point in having an online account if you cannot trade on a day when the market closed at its lifetime high?


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Kaps said...

Technologies like Web based trading have enabled starups like IndiaBulls to make a significant dent in the market.

At the same time, some more startups like could not make a mark.

In the heydays (90's) the broker's licenses used to fetch a few crores.... nowadays the stock brokerage business (atleast the smaller partnership firms / sole proprietorships) are dying a slow death bcoz of screen based trading and online trading.

Anonymous said...

I would be grateful if anyone could tell me which share trading sites have emerged as the winners. I think ICICI Direct is the largest, followed by IndiaBulls. Anyone else know?

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Sunil said...

Helpful post on online share trading. What you talked about ICICIdirect is surprising.

I have very good experience with Apollo Sindhoori for online share and stock trading.

Can you post something about Mutual Fund Investment?

Australia Share Trading said...

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Jagadeesh said...

Nice site, very informative. Online Trading India

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