Capital Markets: Disruptive Drivers of Financial Empowerment

Capital markets are a part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments. Stock markets and capital markets are where wealth is created. And where there is wealth creation, there is security, there is financial empowerment. 

Mr. Ganesh Ram, Head – Mutual Fund, BSE India, who spoke at the recently concluded Femvest 2021 virtual summit on women’s financial empowerment, elaborated on the topic of ‘Capital Markets: Disruptive Drivers of Financial Empowerment’ and achieving financial empowerment through capital markets.

Capital Markets: Disruptive Drivers of Financial Empowerment

Looking at the global picture, United Nations along with PWC conducted a study on how financial empowerment can be achieved. A few important aspects are:

• Access to financial services will enhance livelihood
• Income inequality can be curbed with a resilient financial system
• Self-Help Groups (SHGs) and women should be looped in more when it comes to increasing account ownership among unbanked adults as they are financially illiterate
• Excluding the poor from the formal financial system weakens the overall economic growth. There is an urgent need for promoting job creation and servicing the unbanked which will stimulate economic growth
• Faster and easy access to the credit can promote innovation and sustainable industrialization
• Financial services that can facilitate investment and business innovation should be accessible
• Microloans will help achieve this goal

As far as financial empowerment through capital markets was concerned, Mr. Ganesh clarified that these are not different from what needs to be done in India and these 6 points fit perfectly for India too. Explaining the deep gap that exists in India as of October 2020, out of a 130-crore Indian population, Mutual Fund Investors are 2 crores only and registered taxpayers are 8.5 crore. Looking at the number of Insurance policyholders, which is 35 crore, and Bank account holders who are 42 crore in number, there is a huge gap in the capital markets.

“Even if we look at bridging the gap between registered taxpayers and capital market investment it is double the growth.This growth can be achieved by forming Self-Help Groups. If we look at the average, only 30 – 40 lakh out of the 2 crore investors are women, who are again mostly dependent on men in their family, making it male-dominated investors. This explains how self-help groups can make a huge impact,” observed Mr. Ganesh.

Disruptive themes in the capital markets enabling financial empowerment

Mr. Ganesh also decoded the 6 major disruptive themes in the capital market that will enable financial empowerment in the country.

• Streamlined Infrastructure: BSE and NSE have introduced many apps that will result in streamlined infrastructure for convenience. A huge number of people have started investing in the capital market, the biggest reason behind this being the infrastructure available.
• Automation of High- Value Activities: KYC, transactions, payments, client services, statements, etc are automated, making it less manual work, which will be a big mover.
• Reduced Intermediation: “Reduced” refers to brokers and advisers in the industry. As Robo advisory is growing in India, there is also DIY and with a lot of data available. Many independent investors can be seen now.
• The strategic Role of Data: India predominantly never had a data-centric approach compared to most Western countries. Database decision is something that India need to mature in.
• Niche, Specialized Products: Some platforms offer mutual funds, stockbroking, gold, insurance, etc online, which is another specialty.
• Customer empowerment: The customer will be empowered with the data, technology, portfolio, etc based on which the customer makes the investment decision.

Key drivers of the Indian capital markets

The key drivers of the Indian Capital Market would be e-Advisory & robotics, Algo Trading & AI, Multi-Product Platforms, Accessibility & Convenience, and Regulatory Pressure. “Besides accessibility, innovations and Fintech boom will cause huge disruptions in the capital markets,” added Mr. Ganesh. For the Indian industry, PWC has analyzed how not only self-help groups but key Fintech models will impact financial inclusiveness, and how financial empowerment through capital markets can be secured:

• Incorporation of e- KYC
• Instant money transfer
• Alternative database for customer onboarding to approve loans
• Smart villages and Smart panchayats
• Bank on bike initiative extended to remote villages
• Initiation of no-frills account
• Electronic benefits transfer schemes

“The next 3-5 years are going to be phenomenal and interesting, the manner in which the Indian mutual fund or capital market will go on. Most of the capital markets have gone to zero brokerage and even mutual fund brokerage has gone down to a minimum. Self- help groups will be the key focus and particularly women, who are arguably the best investors compared to men, which will help in the growth of the markets,” concluded Mr. Ganesh Ram.