The way ahead – how to enable intelligent investments through smart technology
The Indian capital market has grown at a rapid rate in terms of resource mobilization, the number of companies going public, market capitalization, trading volumes, and investor participation in equities. With technological advancement and good governance policies gaining ground in India, the overall environment for equity investments has become more conducive as well as investor-friendly.
As per the World Bank estimates, the Indian economy has grown at 6.74 percent in 2016-17 and is expected to reach 7.7 percent by 2019-2020. Given its favourable demographics, India is a leading growth engine for the world economy. As the economy progresses and gross per capita income gradually rises, people will have more disposable income to save and invest which, amongst other things, is likely to find its way to the capital markets. As the markets mature further to achieve levels closer to that in developed countries, technology – more so smart technology – will have a dominant role in growth, and thereby investments. This is true for all types of investments and financial services in general.
We have indeed come a long way since the days of the open outcry system of stock investments and trading, prevalent two decades ago. The commissioning of the National Stock Exchange became a catalyst in overhauling the manner in which equity markets and capital markets functioned to a large extent. Right from screen-based real-time trading to online trading and then mobile trading with the advent of smartphones, technology has not only enabled investments through multiple platforms but has become faster and also smarter.
Smart technology has thrown open immense opportunities for investors to invest. Minimal human intervention, paperless and cashless service delivery, etc. have led to a centralised database and avoidance of multiple submissions of the same information. With KYC norms and services like Aadhaar-based electronic Know Your Customer (eKYC) and eSign facilities, more investments are being facilitated. In addition, Unified Payment Interface (UPI) has enabled digital money transfer, easing access to the markets. Measures like a fully online process of registration with financial market intermediaries like mutual funds, brokers, and portfolio/fund managers, etc., and a single application form for registration, the opening of bank account and demat account, and the issue of PAN has facilitated investments.
Apart from the above, let’s take a look at how some smart technology is leading the way as far as intelligent investments go.
Recent advances in technology such as blockchain, cloud computing, machine intelligence, behavioural science, and other areas are gradually shaping the way in which investments and trading are done and driving the industry forward. Concepts like digital and blockchain are bound to become more profound in the coming days. Further smart technology has also provided impetus to the information services, which in turn have provided vast opportunities for investments and thereby growth. The flare-up in data information, combined with advances in machine learning, has also led the way in generating myriad opportunities in market surveillance, data analytics, and in the capital markets themselves.
In addition, we find Big Data and Robo Analytics becoming more relevant in the investments context. For instance, data analysis is used more as a technical analysis tool for checking historical data to identify trends and price correlation. It helps the investors execute investment decisions on a timely basis and on multiple stocks. In addition, algorithm-based investments have gained ground and the focus from the need for speed to smarter algo-logic. Human intervention is thus getting limited as new technologies take over.
Investment management is being strongly driven by these technology-powered areas, including the shift from passive to active investing and the growth of quantitative strategies. Intelligent technology also plays an integral role in mitigating the risks in a disciplined and rational manner. In the process, this has also changed the dynamics of the domestic broking industry. As companies and content have gone online, more intelligence to investors is available to make informed investment decisions, and they are willing to pay for intelligence rather than transactions. Therefore, it would not be wrong to say that today smart technology, and not brokerage, has become the key driving force.
The world’s first electronic stock exchange was the NASDAQ, way back in 1971. Since then technology has changed by leaps and bound and has re-written investments in capital markets. While the NASDAQ has been at the forefront of smart financial technology, other stock exchanges around the world also aren’t far behind.
To conclude, thanks to smart technology, all investment instruments and markets are today seamlessly available on a single platform. Equity and commodity markets are integrated on a single investor login and so are the derivatives. Derivatives products such as options, swaps, index derivative products, and centralized clearing of OTC forwards facilities have all contributed to growing investments. Would all of been these possible without technology, and even more so, smart technology?