Despite having one of the highest literacy rates in the country, Kerala still has a long way to go toward becoming an active participant in the equity market, feels Alex K. Babu, 34, Managing Director of Hedge Equities, a financial service provider with over 75 branches in the State. Excerpts from an interview where he discusses his early years in finance, the constantly fluctuating state of the market and the economic world order:
You have a background in mechanical engineering; what brought you into the world of finance?
My family owns a seafood export business and I have always had a passion for finance. After finishing college in 2002, I joined the business with the idea of working for a couple of years and then going abroad to do an MBA. But then the European Union banned Indian seafood and we did not stabilise until around 2006. By the next year, the rupee was down to around 39 from the 50s, so we decided it was time to focus on a domestic business, and financial services was the best option for the growing economy. That’s how we started Hedge Equities in 2008 and I’ve been heading it since.
In the current economic climate, what is the situation in India like from your perspective?
There is always huge growth potential in India. Even with a population like ours, the depository participation figure is only around 1.5 per cent, and that has been the case ever since we started. Traditionally, everyone invests in banks, gold and real estate and that is how the system is. Banks here offer more than eight per cent interest on fixed deposits whereas abroad you get maybe one per cent, which automatically encourages people to invest in the market and also makes governments take action if there is a crash. In India, because penetration is low, a market crash only affects that 1.5 percent. So that is not an ideal situation.
What factors need to change in order for the situation to improve?
There are many. For instance, bank penetration is around 90 per cent in Kerala but only 10 per cent people have PAN cards. So there needs to be some statutory support as well, which is now happening as PAN cards have become mandatory for many things. Awareness is another factor, and more young people now know the benefits of investing in other sources thanks to encouragement by employers. But the biggest thing is that financial service providers like us should not oversell products. That is what happened with unit-linked insurance plans back in 2007-08, which caused massive losses. Now there are systems in place to prevent this, but the damage has been done.
What other activities have you undertaken to increase awareness and encourage investment?
Around three years ago, we realised we were hard pressed to find suitable candidates to work for us, so we started the Hedge School of Applied Economics as a backward integration programme. The problem was that MBA finance graduates in Kerala had very little knowledge about financial services, as they were groomed for accounting. Candidates in other states are encouraged to aspire to be fund or portfolio managers. So we began internships, projects and placement training programmes. Of late it has become an institution that helps those looking for a career in finance and also educates people interested in learning more and investing in the market. We’re also working on a non-profit initiative called Hedge Yuva using which we organise investment-related plays for schoolchildren and encourage them to save by giving them ‘bull banks’, our alternative to piggybanks. The idea is to encourage an investment and saving mentality from an early age.
Virtual currency is being spoken about more frequently these days. What is your take on Bitcoin and the like?
Personally, I’m not sure they have much of a future. Economic superpowers print more money and developing countries like ours bear the burdens, but that is the world order as it is now. I’m looking forward to educating and involving more people in what we do. If I can play some small part in taking that participation figure of 1.5 percent to somewhere close to 10 percent, I’ll be satisfied.