Technology key to unearthing investment potential in small towns and villages

Shirini Viswanath, Co-Founder & CTO, UpstoxThat Indian stock markets have matured since the economic and financial liberalization in the early 1990s is evident. The Sensex, which stayed well short of the 5,000 mark for most of the 1990s, has crossed the 39,000 mark few-days ago. Establishing a secure ecosystem, the nation’s stock markets has become a significant avenue for investment by the common man and has succeeded in pulling sizeable retail participation. However, there still lies enormous potential in the small and remote regions of the country.

It is increasingly vital to have an efficient and robust capital markets system for sustained economic growth of a nation. The securities market fosters economic growth to the extent that it mobilizes household savings, among others, to fund corporate growth which in turn helps create jobs and a high standard of living. It is therefore evident that retail participation forms the core of a successful capital market structure.

India is a nation of over 1.3 billion people, of which a vast majority (almost 70 per cent) lives in rural and small towns. There are close to 8 Tier I cities, 26 Tier II cities, 33 Tier III cities and over 5,000 Tier IV towns. Additionally, there are more than 6,38,000 villages in the country!
It is also well known that more than 50 percent of India’s population are millennials --most of whom reside in villages and small cities. It is this group, primarily, which has a significant pie of income at their disposal.

With the top five metros contributing more than 80% of the total capital market investments, it’s clear that the urban markets have been farmed and are reaching their capacity.

The fact then that smaller regions of India offer the most potential and opportunity for the capital markets business is a no-brainer.

Improvements in technology such as mobile communication, fast Internet and online trading facilities is the clearest way to broaden and fast track the geographical reach of the capital markets.
With increasing access to the Internet and power to purchase smartphones, the smaller cities and villages have emerged as a large playground for businesses.

The adoption of the latest mobile technologies may be happening in the urban centers of the country, but increasingly, Tier 2, Tier 3 and rural areas are where volumes are growing and expected to further bloom going forward.
Data shows that the younger generation from Tier 3 cities, who are tech-savvy and have some disposable income prefer to use their mobile phone to trade. More than 70 percent of trade volumes today are from mobile trading platforms.

Here is how technology can accelerate the process of tapping into the smaller towns and villages:
● It is easily accessible and can reach places where physical footprints are difficult.
● It also provides customized solutions. Mobile trading applications and online trading platforms can be localized and differed to meet specific features including language requirements of tier 2, tier 3, and rural markets.
● The technology is user-friendly and can provide information in a crisp, and easy-to-read format.
Additionally, online trading platforms are more appealing to users in small towns and villages since it allows the possibility of small-ticket investments. Equal opportunity to access financial information and great user experience is provided to everyone irrespective of the geographical location.
Use of mobile apps and online platforms helps investors from small regions feel in control of their investment decisions and reduce reliability on market middlemen.

Technology also provides speed, transparency in information and security on investments. Today, a trading member can comfortably sit at home with a laptop, iPad or mobile phone and execute an order with ease. Technology has allowed for shorter trade cycles such that investors today do not have to wait for long periods to see proceeds from their trades.
Moreover, distribution of a financial instrument for investment is more scalable with the help of technology and can offer a variety of investment avenues on the click of a button.

Technology can lower costs by helping financial institutions and businesses enhance value, improve margins and increase efficiency manifold and therefore in turn also lower the cost of investments for customers.

While the contribution of positive regulations has been substantial, there is no denying that it is automation of stock exchanges and brokerages that have been the key drivers for deepening the system.
Stock exchange trading platforms have become automatic, electronic, nation-wide and screen-based. Providing speed and efficiency, thousands and thousands of terminals function on a trading day, and information is flashed on real time basis, just at the click of a button.

The NSE was the first stock exchange to provide fully computerized trading with VSAT technology (since February 2000) which can reach out to investors in metros and small towns alike. Today, the NSE, via its screen-based automated platform NEAT (National Exchange for Automated technology), is the country’s premier exchange and the third largest exchange in the world.

Not far behind, BSE’s Online Trading System, BOLT is the fastest system in the world, executing a trade within six microseconds. The system has helped the exchange establish its presence nation-wide.
Another major development, which materially transformed trading was completely doing away with physical allocation of shares and bring in dematerialization. Securities held in electronic form allow for hassle-free and timely transactions in shares, while mitigating risks of forgery and frauds.

Overall, offering technology in even the smallest town could bring in fold a substantial number of retail investors. These users can play a vital for strengthening the capital markets, and in turn, the economic growth.