Algo trading could well be the future of the marke

Algo trading is possibly the future of the markets,[link widoczny dla zalogowanych]
Dilip Bhat,[link widoczny dla zalogowanych], Joint Managing Director, Prabhudas Lilladher Group foretells Business Line how the finance industry is evolving with algo trading,[link widoczny dla zalogowanych], a third stock exchange and also the dominance of derivative trades.
What exactly are your ideas on MCX-SX getting clearance for a third stock market? The way it alter the stock market,[link widoczny dla zalogowanych]?
It going to be interesting to determine how volumes ramp up. They've a benefit within the sense they already have derivatives within the currencies market. MCX-SX will now have the ability to offer equity and equity futures options, interest rate futures and wholesale debt segments. Investors will have multiple options to invest across asset classes and that makes MCX-SX unique.
MCX-SX is already ahead of the curve when it comes to distribution network and technology back-end,[link widoczny dla zalogowanych], everything must be done would be to grow volume and increase market share,[link widoczny dla zalogowanych], simply because they happen to be in the business of exchanges and financial software. It's possible to now expect more products,[link widoczny dla zalogowanych], more innovation and much more chance of arbitrage and more liquidity.
With cash market volumes in a low and derivatives creating much of the marketplace,[link widoczny dla zalogowanych], revenues for brokers they are under pressure. How is Prabhudas Lilladhar dealing with this?
Well,[link widoczny dla zalogowanych], as the mix is changing it is obvious that the yields too are coming down. We see an identical trend happening for all of us though the rate of change is little slower for us. In the short term,[link widoczny dla zalogowanych], there is pain but world over with the derivatives give great volumes and that more than anything compensates for low cash volumes. The specific game is volume.
NSE data reveal that about 30 per cent from the market volumes today originate from algo trades or co-located facilities. How is this impacting traditional brokerages?
Finance industry is undergoing continuous change,[link widoczny dla zalogowanych], from predominantly delivery to derivatives and now within derivatives algo trades are gradually taking over. Well, even from us,[link widoczny dla zalogowanych], some clients do demand such packages. Algo trading could well be the future of the markets. We understand as India reveals further for foreign investors they'd choose algo trading greatly. Either you learn and adapt quickly or risk being left out within the race.
Though market valuations today appear cheap, you have the trend of falling return on equity and slowing profits of companies. What is your take on this?
With Nifty EPS growth estimated at 13 per cent for FY13 and 12 per cent for FY14, it's currently trading at close to 12 times for FY13 and FY14 respectively. At PEG of near to 1,[link widoczny dla zalogowanych], finance industry is not cheap. Falling ROEs and free cash generation decreasing it only confirms this. It will remain a selective market.
On India Inc profit growth,[link widoczny dla zalogowanych], may be the worst behind us? Is the downgrade cycle over?
A low GDP growth would result in weak corporate earnings growth. So,[link widoczny dla zalogowanych], for the reason that sense,[link widoczny dla zalogowanych], the worst may not be over for India Inc. In my opinion,[link widoczny dla zalogowanych], things will still continue being bad for the economy and might worsen. Hence,[link widoczny dla zalogowanych], earnings will stay susceptible to a series of downgrades over next couple of quarters.
Taking stock now, can you bet on consumer and pharma stocks which are at steep valuations or on beaten down infra and construction names?
It depends on which your call is on the markets. If you think that markets have bottomed out then the strategy will be to take part in the beaten down stocks high could be a huge delta. Since I do feel markets will still need to struggle,[link widoczny dla zalogowanych], given the poor economic parameters, therefore you ought to still play select consumer and pharma stocks. In the infra and construction space,[link widoczny dla zalogowanych], one can certainly buy a few stocks just to play the rallies. But on the secular basis it's very hard to justify their values on a long term basis.
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