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Net trading in India struggling to mature

Internet-based stock trading in India will need several years to separate the wheat from the chaff and notch up any stable volume, according to US derivatives trader Refco Group.

"By mid-2002 we should be able to see substantial volumes in the domestic market for Internet-based stock trading," the group's country head Vineet Bhatnagar said on Thursday.

"In the next 18 months a lot of players will get in, the market will change form and shape, many people will get out. You'll have the survivors and stable volumes," Bhatnagar added.

Refco entered into a joint venture with Satyam Infoway Ltd in March and hopes to launch operations in January.

The joint venture, Refco-Sify Securities India Ltd, is capitalised at $10 million and has purchased membership on the Bombay Stock Exchange and the National Stock Exchange in New Delhi.

"This allows us to do both securities and derivatives trading," Bhatnagar said.

"Currently, we are marketing ourselves aggressively to domestic institutional investors and to foreign institutional investors interested in the Indian stock markets."

Bhatnagar said Refco-Sify Securities would start up in eight key Indian cities and expand depending on the response.

"We will be riding on the Internet service network of Satyam, which is present in 43 cities."

He declined to put a figure on the portfolio investments Refco would channel into India. "We have deep pockets," he said.

Bhatnagar said the joint venture would operate in both the online (Internet-based) and offline (non-Internet based) segments of the domestic stock market.

Refco holds a 60 per cent stake in the joint venture company, while Satyam holds the remainder.

Bhatnagar said the growth of the derivatives market in India was hampered by a lack of public awareness.

"The number of back-office solutions is very low and institutions have the freedom only to do hedging and not take trading positions."

Bhatnagar said another obstacle was local income tax laws which label gains from derivatives trading as gains from speculation.

"All of this has to change. Worldwide, derivatives trading is a multiple of the securities business.

"Even if by 2002 the domestic derivatives market is worth between Rs 100 billion and Rs 150 billion, we are targeting to get between 20 and 25 per cent of this business, in line with our share of the global exchange traded derivatives segment."

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