PLAYING THE STOCK MARKET

Wanna pick up some tips on how to invest in the stock market? Read on.

Jayanand Govindaraj, Director, Anush Shares & Securities Pvt. Ltd. speaks about stockmarket whims and fancies and how it is usually ruled by the herd mentality.

Compared to Mumbai, Delhi, Calcutta and Gujarat, Chennai is small. Its difficult to put down a figure to this, as NSE has terminals everywhere. The volumes here are low as compared to other cities.

It has become completely IT-enabled over the last few years, since the advent of screen-based trading. Every broker’s back office is computerised. A fair amount of shares are de-materialised. Earlier, we used to have a huge staff just to physically deliver the certificates, but now that process has been eliminated. So consequently, broker offices have become smaller and functional. It is good, as it reduces my overheads. On the flip side, per transaction revenue has come down, as the costs have fallen. A lot more transparency has come into this business, as customers can actually come into my office and see onscreen what is happening, what the prices are. Earlier, there used to be a tremendous amount of confusion. It has all changed for the better and the best thing to happen to this business is screen-based trading on the NSE.

I certainly don’t see them dying a financial death, as they still get their revenue from the companies listed with them. But yes, the volumes are down. These exchanges most certainly have to find ways of reinventing themselves. In the longer run, what we envisage is a merger of most of these regional exchanges, and there will be only three or four major exchanges in the whole of India.

The fact is India has too many brokers. Like in any other business, as broking becomes more technology-oriented, some weeding out will take place. Investment in technology and systems is going to be the key. On the whole the Indian broking business will go the US way, where you have full service brokerages as well as discount brokerages.

Theoretically, yes. In any investment you have to first look at the return on capital employed. And of course, there is the risk element. The risk adjustment rates on equity are naturally more than in any other instrument. But the return on equity will be significant only in the long run. There is no point in buying and selling frequently. One advantage clearly is that by holding on for the long term, you don’t pay income tax on your gains, and consequently enjoy compounding on that amount as well.  Unfortunately in our market, there seems to be a high bent of trading. Historically, it has been proved in most markets that equity outperforms debt instruments in the long run. Though the difference might be low, but the fact is, if held for a longer period of time, equity outperforms debt. The investor should have the patience to hold the equity for a longer period.

The average Chennaiite has changed when it comes to the investment habit, but not as much as the guy in Mumbai. People still prefer fixed income here. People prefer fixed income, gold, real-estate and then equity, in that order.

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