Only a strong revival in economic growth will help bring back confidence among retail investors, says B Gopakumar, head (broking), Kotak Securities. Speaking to Jash Kriplani, he talks about plans to strengthen the brokerage?s network in tier-III cities through tie-ups with banks. Excerpts:
What are the kind of retail volumes we are seeing?
Retail volumes have not picked up in the last 3-4 years. Investors have been exiting markets on every spike during the recent market rally. Apart from this, high volatility, interest rates and inflationary pressures are keeping retail investors away from equities.
Has there been any uptick in retail interest?
We have seen some interest after the state Assembly results. But the retail volumes in cash market have remained largely flat. As per our rough estimates, the average daily turnover on retail side has been R3,000-4,000 crore in 2013.
Are mid caps seeing any interest?
Retail investors are shying away from mid-cap stocks owing to concerns over liquidity. Bulk of the flows come from exchange-traded funds (ETFs), which only invest in index stocks. So, a majority of action remains in large caps.
With brokerage revenues shrinking, how do you plan to increase your market share?
We are looking to increase our market share by improving technology and processes. We also plan to come out with research reports in vernacular languages to reach out to more market participants. With penetration of equity markets improving, this demand will increase. To tap tier-III cities, we have tied up with banks for distribution. We estimate our tier-III operations to take at least 3-4 years to break even.
How can technology help in cutting costs?
While cost of developing applications is high, once the technology infrastructure is in place, you can save costs on offline services such as relationship managers or dealers. Over the long run, online services will grow to dominate the industry as opposed to the traditional physical branch set-up model.
When do you see retail investors returning?
While retail participants traditionally have entered markets at peak of the rally, this time they are being cautious. Retail investors will only return once interest rates as well as inflationary pressures start to come off. Apart from this, a significant economic revival would instill confidence among retail investors.
What are the major triggers for markets, going ahead?
Going ahead, markets will look forward to the US Federal Reserve meet and the RBI policy. After the strong economic data in the US, markets are looking for signals from the Fed about the timing of QE tapering. High CPI inflation makes the RBI policy meeting important from the point of view of interest rates.
What sectors should gain the most, going ahead?
In terms of sectors, we are looking at banking, financial services and insurance (BFSI), as we feel financial institutions would be first beneficiaries of an economic revival. Apart from BFSI, we are bullish on certain cyclical stocks as the capex cycle is likely to turn.
At current valuations, does the market look cheap?
Markets are currently trading at about 14.5x consensus Sensex estimates for FY15. This is in line with the long-term average.
