Technology has been the cornerstone for emergence of India’s stock markets from its humble Banyan-tree beginnings to one of the largest market ecosystems in the world. While economic growth and a larger interest in public companies did help in boosting stock market activity, but it was perhaps technology that played the most important role in making stock exchanges and stock trading in India as evolved as it is today.
The brokerage industry, notably, has transformed from an unorganized assembly of a handful of abrasive, wildly gesticulating crowd of individuals jostling against each other to lock-in their trades, into a sophisticated, organized and technology-driven trade. When Asia’s largest stock exchange BSE started its operations over 140 years back, it had only 22 brokers supporting the exchange. Today, the number of brokers is over 22,000. The entire exchange business itself has surged to a mammoth Rs 70 lakh-crore turnover industry, as of financial year 2017-18.
In the past decade, technological advances changed the way client-broker interact on a daily basis and reduced the cumbersome quality previously associated with stock market investing. Introduction of electronic trading way back in the mid-1990s completely automated the process, reduced the manual errors made by brokers and also reduced volatility in the markets.
In 2009, SEBI’s move to usher in algorithmic trading by legalizing Direct Market Access (DMA) was yet another game changer. DMA for the first time gave clients direct control of their own trades and paved the way for algorithmic trading and co-location to execute trades faster.
The revolution in mobile and internet technology in India further changed the way people participated in stock market activities. For a regular trader, getting the timing right to enter or exit the market is of utmost importance. Before the advent of online brokerage firms, traders would often lose many opportunities as they depended on their brokers to physically lock-in their orders.
Discount brokerages leveraged the mobile and internet technology to their full potential in providing completely online services and reducing costs drastically. Technology made clients self-dependent to lock in their trades and led to minimizing interaction with a live broker. Smartphone-based platforms brought markets to the fingertips of the traders and made participation affordable for all. Up until 2014, mobile accounted for less than 1% of trades for brokers but by 2018, most brokers witnessed majority of their trades coming from mobile phones. While this trend might seem like a paradigm shift already, it’s just the tip of the iceberg.
The number of retail participants in stock markets over the past few years still remains insignificant compared to developed markets such as in the US or Europe. It is estimated that only around 3-5 per cent of India’s population invests in markets as compared to over 40 per cent in developed countries.
The next wave of stock market growth would be catalyzed by various factors such as introducing low-cost, high-volume products that would create wealth for all. Financial literacy and education would help in making people realize the importance of managing and growing their monies.
Technology has reduced the hassles and costs of stock market investments to a great extent. Aadhaar-based e-KYC has reduced the amount of errors related to KYC and made the process of opening a broking account or a demat account much faster and completely paperless. With the addition of Unified Payments Interface (UPI), customers now have another option of transferring their funds into their trading account. UPI has made the process of fund transfer to brokerage accounts much faster.
Machine Learning and Artificial Intelligence (AI) have enabled traders and brokers to better identify opportunities. There are high-end mobile apps that understand the investor’s goals and tailor their investments accordingly.
Technology in future will also continue to remain one of the most crucial factors for driving up market participation but now the trick would be in striking the right balance between automating processes with adequate physical support and a human approach to client servicing. This might translate into using voice-based support, offering services in native languages, etc to reach out to users from various regions of the country. Just focusing on digital alone is not a lasting business model. Combining the best parts of having a physical operation along with merits of a digital business is the need of the hour. The broking industry also needs to go phygital so as to be on the fast track of innovations enhancing user experience.
Firms that find a way to bring in human interaction and augment it with powerful technology will define the future of India’s stock market intermediary business.
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