• JANUARY 10, 2001

Journey to e-broking

A few days ago, I had the opportunity to do my first trade through the Internet, and I found it to be a “mind blowing experience”. I have studied the Indian capital markets for close to a decade now and have seen it evolve from doing a trade through a complicated outcry system to one of doing trade on the net. No more do I have to worry about calling the broker, placing the order and wait till the evening for the confirmation. I have to just log on to the net and do the trade by myself and also receive immediate confirmation.

Kudos to the government and the regulator SEBI, they have done a great job in ushering in changes in the capital markets. I do not have to worry about outdated transfer deeds, bad deliveries and the staples on the share certificates. Dematerialisation has taken care of all that. Not only has investing become easier but it has also become cheaper.

Investors shaken and stirred
But of what use are these technologies to the investor if the government has failed in increasing the menu of investible stocks, taking action against errant capital market players, and in creating a vibrant primary market. Barring a few technology stocks, the universe of stocks that are worth investing for the long term have actually shrunk over the past decade. Lack of government commitment to its promises saw multinational companies like ABB and Siemens sink in huge amounts of capital on projects that failed to take off. Also the delay in PSU disinvestments saw dramatic erosions in the value of such asset rich companies like MTNL, VSNL, Indian Oil, HPCL, BPCL, ONGC, Maruti etc. Mismanagement has killed most of the state electricity boards and public sector banks. The result of all such mismanagements is a shaken investor who lost money on his investments.

Confidence building exercise needed
Just as the army undertakes flag marching after a civil riot to increase the confidence among the citizens, the government has to take steps to increase investor confidence. These include unlocking the value of public sector assets, by being firm on its commitment to usher in changes in the power and telecommunications sector, improving the general infrastructure, ensuring a level playing field to the local manufacturers against cheap imports (or rather dumping) and finally by penalising the errant players on the capital markets.

The government should realise that a vibrant capital market is essential for raising risk capital in the economy. It cannot sit quiet on its achievements related to the trading mechanisms of the exchange but will have to deliver on its promises related to reforms. It should also realise that confidence in the system is everything for the investors. This is unlikely to be achieved on a large scale if the investors find that no action has been taken against unscrupulous promoters who raised money for projects that never saw the light of day or find that no action has been taken against the proponents of the 1992 stock market scam. The reduced number of IPO’s barring the few that were done during the TMT boom, is a clear pointer to the fact that the retail investors are averse to investing in risk capital.

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