Geojit BNP Paribas Financial Services is one of the leading financial services intermediaries in India, with a strong presence in the Gulf countries. Listed on the National Stock Exchange (NSE) and on the BSE, it has more than 7,76,000 clients, a network of over 480 offices and has assets under custody worth over Rs.23,600 crore. BNP Paribas is its main shareholder. Geojit BNP Paribas has an extensive presence in the Middle East region via joint ventures and partnerships. Geojit BNP Paribas was founded by C. J. George in 1987. In a candid interview with The Hindu Mr. George spoke on several issues pertaining to asset management. Excerpts:
Geojit BNP Paribas is the first capital market participant or broking firm to introduce internet trading in the country. Today you launched many other products and diversified into other segments in the financial markets. Where are the growth coming from and what is the outlook?
It’s a pity that even with 30 per cent plus savings rate in the country, the number of investors in the capital market remains less than 3 per cent of the population. This is in sharp contrast with all other developed markets and hence our strong conviction is that the capital market investment products will be the choicest investments for savers.
As expected, when the economy grows at an above average rate in the future, the easiest way for savers to get a share of that prosperity is by investing in the capital market. While businessmen benefit from the prosperity of the country through their business, for salaried class, the way to get a share of the country’s growth is by investing in the capital market. Hence, the company’s growth will come from the increasing participation of growing middle class in investment products. In the next ten years, we expect a five times increase in investor population in the country through both direct and indirect access.
Hence, we have a calibrated strategy to focus on capital market products while keeping the product design and delivery a work-in-progress to suit the needs of changing investment habits, risk profile and trends in technology applications. The immediate focus is on strengthening the quality and delivery of our advisory services through the branch network and to provide state-of-the-art technology applications for online services.
What is the future of wealth management business in the country? How far regulatory environment is conducive for its growth in the country?
India is a country with one of the highest rates of growth of wealthy individuals and therefore wealth management has a great future in India. Although there are regulatory restrictions for certain complex structured products, we must appreciate the stand taken by the regulators in view of the large scale abuse of exotic wealth management products in other countries. The product design and complexity can only develop along with the capacity of the regulators to assimilate and regulate effectively.
A large chunk of funds are moving to assets like real estate and gold. But Government would like to see a change. If so, what are your plans to attract these funds to productive purpose or to other financial instruments?
Last decade was the decade of gold, and investors were justified in their choice of gold as an instrument, as the prices were going up. History shows that gold has a cycle that sometimes extends beyond a couple of decades. When a new cycle starts, it remains for a longer period of time. Hence, we are of the view that investors in gold are likely to lose money in real terms for many years to come. This will result in lesser and lesser allocation to gold as an asset class. Real estate has always delivered superior returns in the past and hence will continue to attract investors in future also, while the medium term outlook is negative. Black money in the economy has been pushing the prices of real estate in the country by creating an artificial demand. As the Government has concrete plans to continue its fight against black money, the future, at least in the medium term, is not good and hence investors should stay away from real estate except for genuine residential purposes.
Although both real estate and gold are not a preferred investment destination today, what worries capital market investors is the lack of level playing ground which gives some advantage to both real estate and gold. The KYC regulations and mandatory application of technology in capital market has made it an absolutely transparent market, whereas both gold and real estate are safe havens for people who want to avoid transparency. This indeed places the most productive asset class i.e. capital market at a disadvantage.
We continue our efforts to educate potential investors about the capital market and have conducted more than 3,000 investor education programs in the last few years. Our ability to convert them into investors is high when the economic growth rate is high, as is seen now. We are seeing on an average 7,000 new investors registering with us every month. We also take graduation methodology while handholding new investors by first introducing Systematic Investment Plans (SIPs) to them, then Mutual Funds (MFs) and then finally direct equities and Portfolio Management Services (PMS).
You have a major presence among the Indian expatriates. Whether investments from these segments are channelised to productive purposes?
Post the liberalisation of interest rates for NRI deposits, there is a great challenge in attracting NRI investments into markets. However, after the new Government has come to power we have started seeing increased confidence in taking risk in equities and equity linked products. Geojit BNP Paribas has joint ventures in UAE, Saudi Arabia, Kuwait, Oman and Bahrain to channelise NRI investments into the Indian capital market. We have noticed least reforms in NRI related equity investment rules in the last 20 years, making it an uneasy experience for most NRIs. If these rules can be relaxed, then the amount of long term investment that can reach the Indian capital market can be many multiples of what it is today. The popular feeling among NRIs is that Foreign Portfolio Investors (FPIs) get a better treatment than NRIs when it comes to the capital market.
Mobile trading in equity market has increased substantially over the past few years. What initiative is Geojit BNP Paribas taking to grab this market share?
Geojit BNP Paribas has been at the forefront in providing the latest and newer technology products to investors with an intent to make them empowered to take investment decisions and then to execute it. Today, almost 15 per cent of our daily turnover is executed through mobile applications, which is much higher than the market. We recently launched our powerful and enhanced online trading platform called ‘SELFIE’ and will soon roll out new versions to suit the requirements of growing number of young and tech savvy investors. Only 5 per cent of our daily turnover was coming through online channels ten years ago, today around 55 per cent of our daily turnover is through Internet channels. In four years, the turnover through mobile has gone up from nil to 15 per cent, showing increasing appetite for these channels. RBI will announce the fifth bi-monthly policy in December, how significant is the rate cut from the equity markets as well as personal finance point of view?
It is common knowledge that equities and interest rates have a strong inverse relationship due to equally strong linkages. When investors get high interest rates from fixed deposits (FDs) there is little appetite for risk taking which results in lower flows into markets and markets in turn will be sluggish. When the interest rates come down, corporate profits will go up and earnings will increase and hence share prices will tend to go up. Therefore, rate cuts are very important for the economy in general and the capital market in particular. However, in the context of an increase in Consumer Price Index (CPI) in the recent past, the market doesn’t expect a rate cut in December.
What impact will the global issues like U.S. Fed rate hike expectation, Chinese slowdown and domestic disappointments like suppressed quarter-to-quarter earnings, mounting non-performing assets (NPAs) will have on the Indian markets?
All these external factors definitely have some impact on the markets particularly with significant growth in FPI investment. However, we need to appreciate the fact that only a fraction of global portfolio investment is invested in India so far. When India has become the most preferred investment destination in the world we don’t have to be worried about future capital flows. At the same time, our export competence is likely to become more dynamic due to these above mentioned imponderables and hence earnings quality and volatility will continue to be a concern.
oommen.a@thehindu.co.in
