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With small investors now being able to buy and sell shares on the Internet, Indian stock markets take a big leap into cyber space

By Sheela Raval

Ajay Kakkar, a 30-year-old professional, is holidaying in Goa when he hears that the National Stock Exchange's (NSE) share price index has swung widely. He does not panic. Instead he brings out his laptop, logs on to the Internet and opens a website called ICICIDirect.com where he has his new e-broking account. After checking how his portfolio is doing he gets a roundup on the stock market from the market page. Scanning live quotes on the screen, he types out the password for his account and places a purchase order for some HLL shares.

While waiting for confirmation he looks up the Infosys share price and checks the latest news on the company. The management seems confident of sustaining the company's high growth performance. Time to buy. As the confirmation of HLL purchase comes through, Kakkar is wondering if he has enough money to buy some Infosys shares. He instantly checks the balance on his online bank account with ICICI. Kakkar's balance is slightly short. He had sold some shares of HLL the previous day to book profits. On checking his statement, he realises that the money will come in time to pay for Infosys purchase. Kakkar goes ahead and places an order for Infosys and gets an online confirmation of his deal. Within a week money will get deducted from his bank account and shares should be credited to his demat account with the bank. All this took just 20 minutes and Kakkar is back on the beach, relaxing. "Being able to trade on the Net is great," he says. "I can be on a holiday yet trade my stocks without worrying about missing an opportunity to make money."

E-broking has become a reality in India with the NSE providing gateways to its member-brokers to facilitate online trading of stocks through their websites. Says R.H. Patil, managing director of NSE: "Internet trading is all set to change the way stock transactions are done. It will open vistas of opportunities for the retail investor."

Investors like Kakkar would swear by that. Internet trading in stocks eliminates the hassles of running around the broker, uncertainty over the exact price of purchase, writing out cheques and giving instructions to depository participants (a broker with a demat account). An investor can do his own research on the Net before making a deal. The websites offering e-broking have all the information needed to make an informed purchase or sale. Till recently, such information was the exclusive preserve of big investors.

The sale or purchase of shares involve three steps: placement of order (for sale or purchase), payment (for purchase) and delivery of shares. Since payments through the Internet are not yet legally valid in India, for most small investors e-trading is currently restricted to the placement of order. However, once cyber laws are passed by Parliament -- which is likely to happen in a couple of months -- entire trading could happen online. Says D.R. Mehta, chairman of the Securities and Exchange Board of India (SEBI): "The complete cycle of Internet trading, from booking orders to payments, will go online only after cyber laws are passed by Parliament."

Right now only ICICIDirect has the infrastructure to provide complete online trading on the Net to retail investors. It has a broking arm, an online banking facility which offers demat account for trading in shares. On a trial run right now, it allows select clients (like Kakkar) to do complete trading in shares. The client first opens a brokerage account with ICICIDirect by filling a form online and paying a fee which ranges from Rs 550 to Rs 800. Opening a brokerage account entitles the client to a savings bank account and a demat account (required for trading in demat -- paperless -- shares). With these three accounts, the investor can place the order for purchase or sale, pay from his online account and get the transaction credited to his demat account. Says Madhabi Puri Buch, CEO, ICICI Web Trade: "The Internet will soon become a one-stop stock investment platform."

There are other brokers getting into the fray. The brokers wanting to offer online trading are required to meet certain criteria -- like net worth, security, reliability and confidentiality of data through use of encryption technology, besides a unique user identification number and password -- prescribed by SEBI. These criteria are monitored by the stock exchange on which the broker operates. The broking firms will tie up with banks offering Internet banking facility and will provide their clients online brokerage, bank and demat accounts.

Geojit Securities was the first retail share broking firm to offer live trading on the Net to its select clients. Using an Internet trading software developed by NSE.IT, an infotech company floated by the NSE a few months ago, geojit.com allows its chosen clients web-based order routing, real-time share price display, portfolio management and client information system. Now one of its first overseas investors, L.V. Shyamsudan from Sharjah, logs on to geojit.com with his password and trades in shares listed on the NSE. He places, modifies, cancels or confirms the orders directly on the web. Of course, the client and the broker have a signed agreement.

Says C.J. George, managing director of Geojit Securities: "In the preliminary round of e-trading our objective is to provide transparency in the investment dealings by allowing quick and easy access to valuable research and information." The firm is right now taking a deposit of Rs 3 lakh from each of its clients and giving them an exposure of Rs10 lakh. Such trading is currently limited to placing orders with brokers who own up final responsibilities of payment since electronic signatures are not legally valid.

The stock exchanges too are gearing up their infrastructure to facilitate Internet trading. The NSE has not just put a comprehensive e-trading system in place, it is in the process of connecting the system to the bank interface for online payments. The stock exchange of Mumbai (erstwhile BSE) is in the process of finalising its e-trading module and has informed its 300 member-brokers of the rules for Net trading prescribed by SEBI. Says M. Vaishya, director in charge of e-trading in BSE: "Internet trading will lead to a tremendous spurt in the total trading volumes, involving wider retail participation. "

The outpouring of small investor interest testifies that. The website of Motilal Oswal Securities, one of the firms licensed to provide online broking, gets 7,000-8,000 enquiries a month about online trading. The firm expects at least 25 per cent of these enquiries to convert into clients. The investors will gain from a fall in brokerage fee from 1-2 per cent (of the purchase or sale deal) to just 0.75 per cent. Predicts Deven Choksey, director of KRC, one of the largest retail broking firms in Mumbai: "E-broking will take the stock markets right to the small investors' doorstep."

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