Changing Dynamics
The excellent returns the Indian stock markets have given over the last two-three years is well documented. What remains away from public glare is the sea change in
how the markets operate. Technology has radically changed the marketplace.
Investors today are spoilt for choice. They have more products to choose from. Futures & options and exchange-traded funds are a few among them. They can also invest in equity of foreign companies. All this at lower costs as brokerage rates have declined from over 2% of the transaction value to under 0.5%.
Easy access to credible information and research-based advice along with the changes in capital gains laws has made equities a lot more attractive. Apart from the diverse investment opportunities, investors also have a range of excellent companies to choose from. For instance, while dotcoms are history, companies from sectors like infrastructure, telecom, retail, real estate, are options available for investors.
Change has been the only constant in the key indices. They have seen the entry of many new-generation companies. Some have also delivered superb returns. Last year, for instance, against Sensex's 46.8% rise, Bharti Airtel's shares rose 85.2%. Their rise has also helped broad base the markets. Today the ability of a single company to influence the indices has waned.
Needless to say, these profound changes have also thrown up a fresh set of challenges. Investing now needs a lot more introspection and some amount of active management. It has also increased the need for a regulator with enhanced powers-not just to bark but with ability to also bite. This gains greater currency as the Indian markets increasingly integrate with the global markets.
Going forward, new investors, in the form of domestic private pension funds is expected to become a reality. But return expectations need to be sobered down. The huge returns one has seen in the last 3-4 years might be difficult to repeat.
