Equity culture breaks city walls as affluence spreads

COUNTRY ROADS

Share Of Tier-II & III Cities In Total Traded Turnover Seen On The Rise

  CONTRIBUTION towards traded turnover on stock exchanges from tier-II and III cities is gradually rising, indicating the spread of equity culture beyond the main cities. The four metros — Mumbai, Chennai, Kolkata and Delhi — however, have seen a moderate growth or even a decline in their contribution. This reflects a saturation in the investor population in these places, say brokers.
    Cities like Kochi, Rajkot, Hyderabad and Pune accounted for 5.4% of the total cash turnover of the National Stock Exchange (NSE) in June this year compared to 4.9% in '09-10 and 4% in '08-09, according to city-wise data on the cash market turnover published in Sebi's bulletin for July '10. Many other smaller cities, which are categorised as 'others' in the data, recorded an improvement in their share to 8.1% from 7.4% and 5.7%, respectively.
    According to brokers, many non-metro cities offer scope for expansion of the investing community, due to rising affluence on the back of employment opportunities. As only a small part of total household savings is currently invested in the stock market, there is a tremendous scope for growth in fund flows which have so far been driven by local and foreign institutional investors.
    "There has been a growing interest in the stock market among people in tier-II and III cities, because of a rise in their disposable income," said D Kannan, executive director (retail equity), Kotak Securities, a leading stock broking firm with a country-wise network of branches. Investment flows from cities like Pune and Kochi have been on the rise, as the local population has benefited from the rapid development of these places, said Mr Kannan.
    Unlike the trend in tier-II and III cities, the four metros have not seen much improvement in their share even though the stock exchanges recorded a sharp rise in securities turnover during the period. While Mumbai continues to dominate the broader picture with the share of 56.2% in June compared to 55.9% in 2008-09, the other three — Delhi, Kolkata and Chennai — saw their contribution decline substantially to 12.2%, 7.3% and 1.7%, respectively, from 15%, 9.2% and 2%. They recorded a fall despite a sharp rise in NSE's turnover from Rs 27.5 lakh crore in '08-09 to Rs 41.2 lakh crore in '09-10. The figure amounted to Rs 11.3-lakh crore in April-July this year.
    CJ George, managing director of Geojit BNP Paribas Financial Services, believes that when brokers branch out to the interiors, they attract a new set of clients as opposed to opening a branch in a city inundated with competition. "In cases where a broker sets up a new branch in a metropolitan area, he merely tries to gain an existing client of another broker by offering lower brokerage fees, etc., without adding to the actual number of investors. But in our experience, when we set up branches in, say, the suburbs of Kochi or in the interiors of Karnataka such as Gadag, we actually worked towards adding new clients by working at the grassroots." he said.
    "Growth in Mumbai, Kolkata and Delhi has become saturated and with the market appearing to have entered a bullish phase once again, investor interest in smaller cities has begun to rise," said Gaurav Arora, MD of Jaypee Capital Services. Jaypee has a branch in Chandigarh from where it services clients in Punjab. But after witnessing an increased investor interest in Amritsar, another branch was opened there two years ago, after the market picked up from the lows, said Mr Arora.
    vijay.gurav@timesgroup.com