Indian Market - Where are the Investors

While we are on the topic of EMH on the other thread, check out this article. It talks about the way the market is structured in India and its pretty scary actually. So much for research and stock picking. http://www.suchetadalal.com/?id=214930c7-8ba4-daee-4c751f96fc9a&base=sections&f I guess this should be the case in other EM and developing countries as well?

Sounds like something worth exploiting.

I think Indian market is still in infancy that’s why the structure is like this. Author is right about financial ill-literacy and the pathetic service the customers get. The issues are quite idiosyncratic in my view, can’t express them as there’s no proof for them except my own experience of interactions with people in Indian markets and Indian population. Financial market investments are still the least popular investments here. Insurance & pension industry is in infancy as compared to state of these industries abroad. You go out of big cities and you’ll see rarely anyone has any investment in financial assets. Disclosure requirements and authenticity of statements aren’t as good as they are in US, so financial analysis is taken with a pinch of salt. Real estate and Gold are still the most preferred investments, interest in real estate is just crazy, it tops the charts with wide margins, people even lever themselves up to make this investment (like owning 3-4 houses). There need to be more financial literacy to get people to invest in stock markets, and the exchanges are focusing on this pretty much. Right now Equity market is pretty much HNI’s (High Net Worth Individual) playing field, and the biggest guns are invested in few top wealth managers, so it’s not surprising to see that few big firms are dominant here. Equity markets here are decades behind US market in terms of depth, diversification, quality of service, authenticity & latency of information, transparency and liquidity. Debt markets looks more like they are in testing period.

Also the career in financial markets is still one of most risky in public perception. It has popularity in top college grads and in big cities, but you go out for top colleges and big cities, literally no one is willing to get in this trade, call it misconception of financial ill-literacy or whatever, there’s looong way to go to improve public perception and make people accept that financial services industry is just like any other industry and financial markets are part of life. Here, when people talk about equity markets they talk about fraud and suicides, so perception is heavily skewed.

Sounds like something worth exploiting - Looks like CFA institute is doing that already. Record enrollment and opened up 3-4 centers all across India to cater to the demand.

^ Spot on, I worked on a freelance project for a retired trader once to organize a seminar where he would teach basics of investing and stock market in general. It was totally sales job, and I was surprised by seeing how much people were ready to pay for training. But more surprising thing was response in small and mid size brokerage houses which we contacted, they were asking us to hold classes specifically for their employees, we gave them some quotes just for fun and they were accepting literally any price. We gave them obscenely high rates just to stop them from contacting us back again, surprisingly most of them were accepted, shocked the trader too… haha!

"For whom does the stock market exist? In the 1980s, the Bombay Stock Exchange (BSE) was a virtual monopoly and seen as a brokers’ club. Now, the trading is automated and apparently nation-wide; the dominant exchange is the NSE and the lingua franca English; but it is still a club dominated by 25 brokerage houses with large proprietary trades. " Err…so what does Ms.Dalal exactly want? 2500 brokerages each with a minscule share of the trades? “Trading volumes in the derivatives segment are seven times that of the cash equity market, but participation is even more skewed. Minister NN Meena says that there were only 5.75 lakh traders in this segment over the April-June period, of which just 18,035 provided 90% of the turnover. Slice it further and we find that a massive 50% of trading turnover comes from just 106 investors, of which 58 are proprietary firms. We have already published these scary statistics on www.moneylife.in, so here is an analysis of what this means” Does the author want retail participation in the Derivatives market when the avearge person here is afraid of dealing in stocks in the cash market??? “The minister’s answer suggests that the NSE is nothing but a casino for a tiny minority. He told Parliament that 67% of all derivatives transactions are squared up intra-day. We find that most of the trading is concentrated on the Nifty index options; these account for 44% of trading volumes.” wow…seems like the author missed the rally from 9k to 20k. case of sour grapes anyone? if it is indeed a casino, the bubble ought to have burst right? markets here are somewhat inefficient…no doubt, but Ms.Dalal’s views are extreme !

@reddevil_l3 1. Isnt 25 too less? I would say there is not enough competition among brokerages and thus transaction costs in India are among one of the highest. 2. Equity derivatives are the only instrument for taking leverage bet. For retail investors not only margining requirements are too high (20% for single stock futures), cross margining is not considered. Brokerages are too fast in squaring trades without informing investors. Haircut on the stocks pledged as collateral is not consistent across brokerages and can go as high as 40%, if at all they allow your stocks to be considered as collateral. 3. 9k to 20k rally is wonderful for buy and hold guys. But if you are squaring off trades intra day then indeed its a casino. On bursting bubble the only asset class available for leverage play is indeed a bubble. How can someone expect his house to be worth 500 times of monthly rental?

Did you not see the last run up to 20k and how that burst?

Err…but the last rally burst ALONGWITH the global burst…so how can the article really blame the local systems/rules for the burst?

my point is…(to the few retail investors that i talked to)…people arent ready to buy and hold. even for as little as 1-2 years. after losing money, they blame the brokers for being “evil” and “manipulative”… someone who invested in a SIP (investing each month) has made good returns. if the point is to “empower” the retail investor, the retail investor has to first be convinced about the buy and hold strategy !

sameeragarwal Wrote: ------------------------------------------------------- > @reddevil_l3 > 1. Isnt 25 too less? I would say there is not > enough competition among brokerages and thus > transaction costs in India are among one of the > highest. > 2. Equity derivatives are the only instrument for > taking leverage bet. For retail investors not only > margining requirements are too high (20% for > single stock futures), cross margining is not > considered. Brokerages are too fast in squaring > trades without informing investors. Haircut on the > stocks pledged as collateral is not consistent > across brokerages and can go as high as 40%, if at > all they allow your stocks to be considered as > collateral. > 3. 9k to 20k rally is wonderful for buy and hold > guys. But if you are squaring off trades intra day > then indeed its a casino. > > On bursting bubble the only asset class available > for leverage play is indeed a bubble. How can > someone expect his house to be worth 500 times of > monthly rental? 1. Well, with time you will have more participants. How would the rules be held responsible for a low no.of high volume trading houses? 2. ok. 3. Squaring off trades is within the legal framework. how would you prevent someone from not doing so? and in the longr term, the fundamentals are driving the market. so wy should the retail investor be worried? unless of cuz, he is a short term trader !

I feel the article’s point was to show that despite an infrastructure that is available for an efficient market to exist, the market is actually being controlled a few people. This is a fact! How do you expect an investor to have confidence in the market then? I highly doubt you can actually make a lot of money in the Indian market researching by yourself and not having some “connections” with someone inside the market. That is why people jump into the bandwagon to make money and then get screwed when the get mis-informed by the person who they have been following wants to make a quick buck. This is the issue that has to be addressed. Everyone wants to make a quick buck unfortunately and there is no concept of a long-term strategy for a common person.

The whole idea of value investing and being long term just doesn’t apply to most places and especially India because it’s been such a roller coaster the past 15 years. There is a massive gambling psychology at work. The markets go up as F2 goes in and down as they go out. When the markets are up investors brag about how “India is booming” or how they are “Making a Killing, only.” Then when it gets bad we see hillarious finger pointing and assigning blame to anyone else and everybody else (e.g. evil foreign investors who sent the prices up in the first place). Nobody can ever admit here that they made a mistake. It’s one of the funnier qualities I’ve noticed of South Asians. As for the efficient market thing, since when is any industry in India efficient? If you were a rich Indian controlling the stock market or any Indian industry why would you want it to be? It’s not going to increase your market share! As far as I am concerned, India invented Porters five forces about 5 melleniae before Porter, you don’t need to be a Harvard professor to know that keeping a market inefficient: blocking competition, controlling bargaining power of consumers and suppliers, keeping your rivals small in number, and not letting more competition into your cozy little club will all yield impressive profits. The powers at be realized this long ago, and decided that making tons of money controlling everything was worth much more than a nobel prize in Econ. It’s all about greed, kids.