Journal of Internet Banking and Commerce

An open access Internet journal (http://www.arraydev.com/commerce/jibc/) Journal of Internet Ban in! and "ommerce# $ecember %&''# vol. '(# no.) (http://www.arraydev.com/commerce/jibc/)

Impact of Internet Growth on the Online Stock Trading in India

Sarika Srivastava Assistant Professor at Glo al Institute of !anagement" Gandhinagar" Gu#arat *ostal Address: $%&'" I((CO )alol Township" P*O* )asturinagar" Gandhinagar +Gu#arat, % -./0/+mail: sa1enasarika/23rediffmail*com Dr. Sarika Srivastava is working as an Assistant Professor at Global Institute of Management, Gandhinagar (Gu arat), India. !er areas of interest are Strategi" #inan"ial Management$ %"onomi"s and &ost A""ounting .She has "om'leted her Ph.D. at (anasthali )niversit*, +a asthan (India) in the area of (ehavioral #inan"e.

A stract
,earl* two billion 'eo'le are "onne"ted to the Internet. During the last twent* *ears, the te"hnolog* revolution has had an intense and irreversible im'a"t on the world and Indian th sto"k market has also witnessed these "hanges. #rom its formal in"e'tion in the -. "entur*, the Indian "a'ital market has "ome a long wa* and "an be said to be in a maturit* stage, ba"ked b* a develo'ed legal s*stem. /he internet has made finan"ial 'rodu"ts and servi"es available to more "ustomers and eliminated geogra'hi"al barriers. %arlier investors were solel* de'endent on their brokers but nowada*s the* are 'arti"i'ating more in bu*ing and selling of shares with the hel' of internet. %0trading has saved time, energ* and mone* as it hel's to a""ess the market from an* where at an* time. /he 'rimar* ob e"tive of this resear"h 'a'er is to anal*1e the im'a"t of internet growth on the sto"k market transa"tions. /he 'a'er also dis"usses the "urrent state of internet trading in India and 'arti"ularl* the s"o'e of online trading market available in India.

2e*words3 Indian Stock !arket" Internet" Online Stock Trading 4 Sarika Srivastava, 56-JIB" Au!ust %&''# ,ol. '(# -o.)

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India was introdu"ed to the Internet in the earl* .67s and the use started to in"rease ra'idl*. India stands 8th in the list of "ountries b* number of internet users. /he Sto"k markets introdu"ed Internet trading (online0trading) in #ebruar* 5665 whi"h has brought a tremendous "hange in trading. /he ,ational Sto"k %9"hange started the first form of online trading wherein user:investors "an bu*:sell sto"ks in a da* without mu"h 'a'er work. %arlier it used to take around ;6 da*s to bu*:sell sto"ks in sto"k markets and the investor also had to go though loads of 'a'er work. (ut thanks to Internet the wait has "urbed and in the last ten *ears, Indian "a'ital markets have re"orded -<==> of growth in e9"hange turnover.

O47I48 STOC) T5A$I4G I4 I4$IA

?nline sto"k trading in India has gained ground in the last two *ears. It@s interesting to note that it was a beer making "om'an*, ABI/ (eerC that for first time, wa* ba"k in -.;., had introdu"ed the idea of online sto"k trading. /here are several leading "om'anies involved in online sto"k trading in India. I&I&IDire"t, Sharekhan, Anand+athi ,Geo it se"urities, Indiabulls, +eligare, 2otak Se"urities, Motilal ?swal Se"urities, +elian"emone*, India Infoline."om Se"urities limited , and ID(I Paisabuilder are the ma or 'la*ers in online Indian sto"k trading.

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(rad M. (arber and /erran"e ?dean (5665) anal*1ed -,;6D investors who swit"hed from 'hone based to online trading during the -..6s. /hose who swit"hed to online trading 'erform well 'rior to going online, beating the market b* more than 5> annuall*. After going online, the* trade more a"tivel*, more s'e"ulativel*, and less 'rofitabl* than before Elagging the market b* more than F> annuall*. +edu"tions in market fri"tions (lower trading "osts, im'roved e9e"ution s'eed, and greater ease of a""ess) do not e9'lain these findings. ?ver"onfiden"eEaugmented b* self attribution bias and the illusions of knowledge and "ontrolE"an e9'lain the in"rease in trading and redu"tion in 'erforman"e of online investors. /he* found that investors who "hoose to make investments online are better 'erformers than those who do not go online before the swit"h but worse 'erformers after the shift. /he idea is that over"onfiden"e indu"es them to swit"h but then e9"essive trading after the swit"h dissi'ates their 'rofits. !aroun Alr*alat, Gogesh 2umar Dwivedi, Hasna 2ul is, and +a* H. Paul (566;) anal*1ed the effe"t of online and traditional trading on effe"tive market 'erforman"e on the ,ASDAI. /he 'ur'ose of this 'a'er was to 'resent a "riti"al anal*sis on the "om'etition between online (%&,) and traditional (Market Maker (MM)) trading on the ,ASDAI sto"k e9"hange. ?nline sto"k trading me"hanisms at the e9"hanges are often a h*brid of dealer and au"tion markets. Different as'e"ts of trading e9e"ution, whi"h is the most "ommonl* used market "entre at 'resent, were anal*1ed. /his leads to a dis"ussion on3 (-) the 'ath that e9e"utes order is organi1ed and (5) its im'a"t on the effe"tive market 'erforman"e, trading "ost and investor behaviour.

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,idhi Balia and +avinder 2umar (566D) wrote in their resear"h 'a'er, whi"h was 'ublished in Indian ournal of marketing, that there is no den*ing the fa"t that internet trading offered investors "onvenien"e of trading along with redu"ed "ost. (ut Indian investors have not *et full* reali1ed the im'ortan"e of using te"hnolog* for sto"k trading. /he ma or findings of the stud* are the Indian investors are more "onservative, the* do not "hange brokers for trading, whereas net traders are more "omfortable with online trading for its trans'aren"* and "om'lete "ontrol of the terminal. In the Indian "onte9t, online trading "an be rightl* "alled as a re"ent 'henomenon, and even till da* online trading is not mu"h 'o'ular among investors for whi"h a list of fa"tors "an be blamed. /his fa"t is "learer from the information available that where numbers of sto"k e9"hanges in India have grown from D e9"hanges in -.<; to total 5F sto"k e9"hanges till 56--, onl* two sto"k e9"hanges are 'roviding online share trading. ?ver the 'ast two *ears, the value of all trades e9e"uted through internet on ,S% has grown from less than +s. -66 &r. to over +s. D66 &r. in Hune 5668.?nline trading is gaining momentum with trading volume growing b* -86 > 'er annum.

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Trading 9olume In the *ear 566.0 -6, the trading volumes in"reased b* 86.F; > to <,-F=,65F "rore ()S J .-;,D6. million) from 5,D85,65F "rore ()S J 8<6,-<5 million) during 566=06.. /he average dail* trading volume in"reased from --,F58 "rore ()S J 5,55F million) during 566=06. to -;,.8. "rore ()S J F,D8D million) during 566.0-6. /he remarkable as'e"t was that the trading volumes in the *ear 566.0-6 showed a growth of -;.8F > over the trading volumes witnessed in 566D06=. !arket Capitali;ation /he total market "a'itali1ation of se"urities available for trading on the &M segment in"reased from F;F,F86 "rore ()S J --8,;6; million) as at end Mar"h -..8 to ;,66.,-DF "rore ()S J -,FF-,5F6 million) as at end Mar"h 56-6. /he Market "a'itali1ation witnessed an in"rease of -6D.<. > during 566.0-6 as "om'ared to the market "a'itali1ation of 5,=.;,-.< "rore ()S J 8;=,<F. million) in 566=06.. As "om'ared with 566D06=, the market "a'itali1ation in 566.0-6 in"reased b* 5F.;. >. /he market "a'itali1ation ratio of ,S% was .D.<.> as of Mar"h F-, 56-6. /he "om'an* with the highest market "a'itali1ation as of Mar"h 56-6 was +elian"e Industries Kimited followed b* ?il and ,atural Gas &or'oration of India Kimited and ,/P& Ktd. On%line IPOs /he on0line trading s*stem of ,S% is used b* "om'anies to make IP?s through book building. It is a full* automated s"reen based bidding s*stem that allows trading members to enter bids on behalf of their "lients. All bids re"eived b* the s*stem are numbered, time stam'ed, and stored in the book till the last da* of the book building 'ro"ess and the offer 'ri"e is determined after the bid "losing date. Bhile ensuring effi"ient 'ri"e dis"over*, this s*stem redu"es time taken for "om'letion of the issue 'ro"ess. F<5 "om'anies have used the on0line IP? s*stem of ,S% b* the end of Mar"h 56-6. JIB" Au!ust %&''# ,ol. '(# -o.) 0<0

Internet Trading

At the end of Mar"h 56-6, a total number of F;F members were 'ermitted to allow investor@s web based a""ess to ,S%@s trading s*stem. /he members of the e9"hange in turn had registered 8,-<F,D68 "lients for web based a""ess as on Mar"h F-, 56-6. During the *ear 566.0-6, --.-F > of the trading value in the &a'ital Market segment (;.5,D=. 0 )S J -F8,.D< million) was routed and e9e"uted through the internet. /he table below shows the growth of internet trading from the fis"al *ears 566;06D till 566.0-6. &hart0shows the internet trading volumes in the &M segment of ,S% in "om'arison with the total traded volumes at ,S%.

Chart &< Internet Trading 9alue in the C! Segment in comparison with total trading volumes at 4S8 Source< 4S8%(act Book /=&=

>ear

8na led

5egistered

Internet Trading

? of Total

!em ers 566;06D 566D06= 566=06. 566.0-6 5<5 F68 F<. F;F

Clients 55,D.6.= <<68,-F< 8,;5D,D=. 8,-<F,D68

9olume +5s* Crores, F,FD,88< ;;=,F.. ;.5,D=. .5-,F=6

Trading 9olume -D.F8 -=.=5 58.-D --.-F

Ta le &< Growth of Internet Trading Source< 4S8%(act Book /=&= JIB" Au!ust %&''# ,ol. '(# -o.)

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A""ording to a M"2inse* re'ort titled LInternet matters3 /he ,et@s swee'ing im'a"t on growth, obs, and 'ros'erit*@, released at the e 0G= #orum held in Paris on Ma* 5<058, 56--, internet "ontributed 8 'er "ent to the total gross domesti" 'rodu"t (GDP) growth of India in the 'ast five *ears "om'ared with the average F 'er "ent for (+I& ((ra1il, +ussia, India and &hina) e"onomies. As 'er the re'ort, "om'anies are able to kee' "osts down, target "ustomers better and bring goods and servi"es to markets around the world mu"h more easil*. Individuals are able to "om'are 'ri"es, sear"h hard0to0find items or information, "ommuni"ate and learn in new, im'roved wa*s. Governments "an serve "iti1ens mu"h more Mui"kl* and at a mu"h lower "ost through e0governan"e. A""ording to the re'ort there are 5 billion internet users worldwide and as a se"tor, internet related "onsum'tion and e9'enditure is now bigger than agri"ulture or energ*. /he re'ort further said that internet has a swee'ing im'a"t on growth, 'ros'erit* of a "ountr* and has "reated 5.< obs for ever* ob that it has destro*ed. N/he Internet is a "ontributor to net ob "reation. Bhile obs have been destro*ed b* the emergen"e of internet, man* more have been "reated during the same 'eriod, in"luding obs dire"tl* linked to the internet, su"h as software engineers and online marketers as well as more traditional obs, logisti"s to deliver online 'ur"hases,A the re'ort added. Moving towards an Internet0based e"onom* "an hel' fill the ga's that lead to 'oor 'erforman"e in a traditional e"onom*. Initiatives in the agri"ulture se"tor, su"h as Lm2rishi@ in Madh*a Pradesh, allow farmers to benefit from timel* e9'ert advi"e. /he LaAMua@ 'ro e"t in Maharashtra uses the Internet to "onne"t with farmers to address a range of "on"erns related to 'rodu"tion, 'ri"ing, in'ut and out'ut su''l*. /he Internet is also 'romoting government servi"es in a big wa*. %9am'les su"h as Aarog*asri in Andhra Pradesh are enabling end0to0end "ashless servi"es to "iti1ens, and filling health se"tor ga's in do"tors or basi" infrastru"ture. (roadband0su''orted, "ommunit*0driven initiatives su"h as (arefoot &ollege in +a asthan, &handeri*aan in Madh*a Pradesh and AirHaldi in !ima"hal Pradesh are having a""elerated effe"ts on "iti1ens. !arOa is a greenfield 'ro e"t that serves as an outstanding e9am'le to demonstrate the "ausal im'a"t of the Internet on in"ome. /he Internet is now widel* "onsidered a fundamental infrastru"ture in the ?rgani1ation for %"onomi" &oo'eration and Develo'ment (?%&D) "ountries in mu"h the same wa* as

ele"tri"it*, water and trans'ortation. India, as an ?%&D member, must re"ogni1e a""ess to the Internet as a basi" right. JIB" Au!ust %&''# ,ol. '(# -o.) 0;0

Chart /< Internet 6sers in the :orld A Geographic 5egions% /=&& Source< www*internetworldstats*comBstats*htm

Chart -< Internet 6sers in Asia

Chart 0< Internet Penetration in Asia

Source< www*internetworldstats*comBstats*htm JIB" Au!ust %&''# ,ol. '(# -o.) 0D0

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8%Commerce !arket to Be 5s* 0C"D/= Crores In /=&& /he internet "ommer"e industr* in India has seen a manifold in"rease in the last "ou'le of *ears with the total market si1e in"reasing from I,+ -., ;== "rores b* the end of 566. to an estimated I,+ F-, 8.= "rores in 56-6. /he net "ommer"e market si1e is e9'e"ted to grow b* <D> and tou"h I,+ <;,856 "rores b* end of 56--. /his was highlighted b* a re'ort on the %0"ommer"e released b* the Internet and mobile Asso"iation of India (IAMAI).

Ta le /< 4et Commerce Si;e from /==2 to /=&& Source< 5eport on 8%Commerce released A IA!AI /he re'ort also highlights that other areas like digital downloads and e0tailing are showing 'romise and growing ra'idl*. /hese se"tors are 'redi"ted to grow b* ;5> and tou"h I,+ --66 "rores and I,+ 5D66 "rores res'e"tivel* b* De"ember 56--. Another area that has shown signifi"ant growth is the finan"ial servi"es market that has grown from I,+ -8<6 "rores to an estimated I,+ 5666 "rores b* end of De"ember 56-6.

/his se"tor is e9'e"ted to grow b* F<> and tou"h I,+ 5;=6 "rores b* end of De"ember 56--. JIB" Au!ust %&''# ,ol. '(# -o.) 0=0

Ta le -< (inancial Services +in Crores, Source< http<BBwww*iamai*inBP5eleaseE$etail*asp1FnidG//-=H4!onthG-H4>earG/=&& 4ation%:ide Broad and ConnectivitA Can Be Achieved In - >ears< /he Internet and Mobile Asso"iation of India (IAMAI) has said that an inde'endent agen"* "an ensure national broadband "onne"tivit* a"ross the "ountr* within F; months. /his was said b* the asso"iation in its res'onse to the /ele"om +egulator* Authorit* of India@s (/+AI) new set of re"ommendations on the ,ational (roadband Plan 56-6. IAMAI full* su''orts /+AI@s re"ommendations brought out in the "onsultation 'a'er on ,ational (roadband Plan. AMAI is of the view that the /+AI 'ro'osal alongside and in 'arallel with the develo'ments in the market 'la"e vi1., arrival of FG and (BA will be able to bring in a true broadband revolution in India. C= !illion Internet 6sers in India :itness (inancial Transactions over Internet Ministr* of &ommuni"ations and Information /e"hnolog*, is of the o'inion that the utilit* and relevan"e of digital "ommer"e "an be well understood b* the fa"t that out of a''ro9imatel* ;6 million internet users in India, nearl* one third of this number are doing finan"ial transa"tions over internet. Digital &ommer"e holds huge im'ortan"e, es'e"iall* for the Indian e"onomi" stru"ture. /here is a lot of 'otential for the rural 'o'ulation as the outrea"h is ver* im'ortant to enable the rural 'o'ulation to gain ma9imum without having to s'end so mu"h b* saving on fuel, time and effort et". JIB" Au!ust %&''# ,ol. '(# -o.) 0.0

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&a'ital market 'la*s a vital role in 'roviding liMuidit* and the 'otential of the Indian "a'ital market is immense. Sto"k market develo'ment matters for growth as a""ess to e9ternal funds allows finan"iall* "onstrained firms to e9'and. /he 'a'erless trading environment has redu"ed mani'ulations to a large e9tent and finan"ial markets have started rewarding "om'anies. Se"urit* is also one issue whi"h is a"ting as a "hallenge at the mindshare level of internet users. Although threats are growing and getting in"reasingl* dangerous, but te"hnolog* is available to enable se"ure e0"ommer"e e9'erien"e. /hrough digital "ommer"e the rural user "an a""ess servi"es and data easil* and effe"tivel*. All we need to look at "arefull* is to "reate a robust and safe infrastru"ture for "arr*ing out this a"tivit* of users though online or mobile gatewa*. #ast internet "onne"tion, if 'rovided at lower 'ri"es "an give a boost to digital "ommer"e regime. JIB" Au!ust %&''# ,ol. '(# -o.) 0 -6 0

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(arber, (. And ?dean (5665) /., N?nline Investors3 Do the Slow Die #irstPC +eview of #inan"ial Studies, Ool. -8, <88Q==. Desai Oasant (56-6), N#inan"ial Markets and #inan"ial Servi"esC, 5-5055=, #a"tbook056-6 from www.nse0india."om Gala Hitendra (566D), NGuide to Indian Sto"k MarketC, <<085 !aroun Alr*alat, Gogesh 2umar Dwivedi, Hasna 2ul is, +a* H. Paul (566;) , N International Hournal of %le"troni" finan"e , Oolume - , ,umber 5C, -8-0-D6 htt'3::finan"e.ma'sofworld."om:sto"k0trading:international0online:india.html htt'3::www.aloote"hie."om:news:internet0"ontributed0india>%5>=6>..s080gd'0growth0 last080*ears0m"kinse* a""essed on F6 Ma* 56-htt'3::www.arti"ledashboard."om:Arti"le:Im'a"t0of0Internet0on0Indian0Sto"k0Market0and0 Investors:5F;=;=6 a""essed on 68:6D:56-- htt'3::www."ellbharat."om:blog:<668:;60 million0internet0users0in0india0witness0finan"ial0 transa"tions0over0internet: a""essed on 6=:6=:56-htt'3::www.iamai.in:P&ovRDetail.as'9PnidS-.D-T,MonthS--T,GearS566. a""essed on 65:6.:56-- htt'3::www.iamai.in:P+eleaseRDetail.as'9P nidS5-5.T,MonthSDT,GearS56-6 a""essed on -5:6=:56-- htt'3::www.iamai.in:P+eleaseRDetail.as'9P nidS55F6T,MonthSFT,GearS56-a""essed on 6<:6.:56-- htt'3::www.livemint."om:56--:6D:6F5FF<F=:Ket0Internet0 have0a0greater0ro.htmlPhS( a""essed on 6D:6D:56-htt'3::www.m"kinse*."om:mgi:'ubli"ations:internetRmatters:inde9.as' a""essed on -6:6=:56-Balia ,idhi and +avinder 2umar (566D), N?nline Sto"k /rading in India3 An %m'iri"al InvestigationC, Indian Hournal of Marketing, A'ril, Oolume UUUOII, ,o.<