"Capital Market Finding The Right Combination"

One of the most illustrious ways of investing your wealth is into stocks and equity. However, at the same time, it’s one of the commodities that makes people wary of. But as the greats say: the key to making money in stocks and equity is not to be scared of it. So agrees Ravi Varanasi, who is celebrating his silver jubilee with the National Stock Exchange (NSE). Serving as their Chief Business Development Officer, he feels that stocks and equity can offer a lot to the investors if they approach investing with discipline. As the world undergoes a huge change due to outbreak of the novel coronavirus, Ravi assures that everything is A Okay with the capital market industry. In a conversation with Corporate Citizen, this witty man shares his corporate journey, talks about the positives that the pandemic has brought into this industry and much more. Read on!

"Talking about demonetisation, one of the positive outcomes is in a way the significant move towards the digital-based exchange of money. It had to move towards the direction of digitalisation"

Corporate Citizen: Before we jump to the question of the hour, could you tell our readers a bit about yourself?

Ravi Varanasi : To begin with, I was born and raised in Amalapuram, Andhra Pradesh. I finished my college and education from there and later, I joined the State Bank of India (SBI) during the end of 1980s. With that, I also got a chance to work in the northeast part of our country for about six years. Subsequently, I worked with Vysya Bank for a short period. And once I entered NSE in the mid-1990s, there was no looking back. I joined NSE, a year after its inception. The work there has kept me occupied and added years and meaning to my life. That has shaped me into a person that I am today. It’s been 25 years since I joined NSE and I love every bit of the time that I have spent here. I have been looking at multiple areas of exchange operations. In the beginning, I even set up their Delhi regional office. Afterwards, I have handled the regulatory set up for the exchange and soon, I started handling the business development. Frankly, it has always been exchange!

Well, that’s about my work life. And when I am not working, I love reading business and fiction books. I used to be a movie buff but not anymore. An occasional hearty movie with my family gets me alive and kicking. I happen to enjoy a lot of audiobooks these days as they provide flexibility to listen while exercising and travelling.

CC: Congratulations on celebrating your silver jubilee with NSE. How was the experience been so far?

I joined NSE in 1995. These 25 years have been a joyous ride. I have learnt a great deal and this industry has given me a lot more than I can ever ask for. In these years, I have seen our capital markets grow from being a laggard to the best in the world. We came as the least developed market and now we are the most developed market in the world. NSE is the largest derivatives and largest multi-asset exchange in the world. And it gives me immense pleasure to be a part of this journey. We have expanded the capital market manifold in these 25 years and still, there is a huge amount of work to do. And it’s a great feeling to be a part of this growth since the very beginning. Overseeing the launches of the new products, fixed income derivatives, FX derivatives, commodities and a lot more, has helped me evolve as a person. So, it’s been a huge learning experience. As per my experience, I see a bright future for the capital markets and investors. Brace yourself, there are a lot more exciting products coming your way.

This industry has made me diligent and innovative. I have learnt and firmly believe that we must keep our customers at the centre so that we can deliver whatever they need at the lowest possible cost. This sector rides on trust and I hope the investors understand this.

CC: So, what attracted you to this field?

Well, I wouldn’t disagree. I would say that it all happened by luck and chance. I guess something’s are just meant to be. While I was doing my PG in chemistry, I left it for a job that I was offered in the banking sector. The fearlessness with which one works in the sector attracted me. Once I was working with SBI, I was more into finance. NSE, again, happened completely by chance. Looking back, I am beginning to believe that I always had some interest in the stock market.

"I have learnt and firmly believe that we must keep our customers in the centre so that we can deliver whatever they need at the lowest possible cost"

CC: Now, coming to the pressing issue that the world is facing. We have always been living in uncertain times. And the outbreak of coronavirus has proved that in times of volatility, one needs to make informed decisions, which is something that the capital market heavily relies on. The past few months have been devastating, as most of the sectors had to face the wrath of this virus. So, how this pandemic affected the capital market sector?

It is unfortunate to see the kind of destruction that this pandemic has brought in. But let’s not forget that every cloud has a silver lining. And especially the capital market industry has seen several positives.

As soon as the lockdown was declared, we cumulatively made efforts to keep this industry up and running. The first thing that we did was, we got the government to declare the capital market as an essential service. So, inherently it gave this industry the same opening which it always had. Also, our brokerages adapted to the changing needs and deployed relevant technology solutions quickly. So, we were able to handle the market without any hassle throughout this period. Fortunately, all through the hoopla, the market functioning wasn’t affected at all.

The Securities and Exchange Board of India (SEBI) has relaxed some specific restrictions relating to the trading terminal location. These interventions facilitated trade from the home of broker-dealers. It ensured the smooth functioning of the markets. This gave them the privilege of moving their work base to their home. Owing to technology and infrastructure, the shift was hassle-free. They were able to adapt to new conditions quickly. This ensured that the market was working in tandem both in terms of exchange and dealing.

CC: For how long will the brokers and employees be working from home? And will this new normal of working from home come with some repercussions?

I think returning to normal will not be possible till the time there’s a clear vaccine and some level of working will continue from home. While the lockdown is taking place in a phased manner, for the complete lockdown to take place, a vaccine is critical. Without that, it would become complicated for any government to open up everything at one go. Even if the vaccine is ready in the coming days or months, producing a vaccine in such large numbers for our country is a task. That would possibly take a few more months and that’s when the lockdown can completely unwind.

Brokers and employees have seen the pros and cons of working from house. There are few technical difficulties but they can be easily handled. I believe, flexible working will be the new normal, where everyone will be working both from home and office as per the situation. The key is to find the balance. One of the cons of working from home is, people are not able to draw the line between work and personal life. Having a dedicated workspace would be the first step. Both employers and employees have to work together to establish clear segregation of work and personal life. For a short period, its fine to work from home, for a longer duration there could be a lot of complications.

Our core operation staff has always been working from the office. Complete work from home might look like a good option, but let’s not forget that it could have a devastating impact on the economy as a whole. Suddenly if people start working from home or moving to the suburbs, think about the infrastructure that will go for a toss in large cities. To retain these infrastructures, city authorities will try and attract people back into the city.

What is Social Stock Exchange (SSE)?

It creates a platform where social enterprises can list and raise capital to create social or environmental change with a slight intention of financial returns from their investment.

The SSE, which functions on a common platform, is where social enterprises can raise funds from the public. It will function on the lines of major stock exchanges like BSE and NSE. However, the purpose of the SSE will run on the lines – not profit, but social welfare.

Why SSE?

In the coming years, India needs massive investments to meet the human development goals identified by the UN. The government alone cannot handle these issues. There are social enterprises in our country but there is a lack of funds. SSE is like mediatory, where these enterprises can raise funds for the larger human benefit.

Benefit :

SSE is one of the great ways in which funds could be unlocked from donors, philanthropic foundations and CSR spenders, in the form of zero-coupon zero principal bonds. These bonds will be listed on the SSE.

CC: What are the other changes that the market has gone through?

Overall, there has been a significant increase in the liquidity in the market owing to the interventions by the governments and central banks across the globe. Initially, the market faced a few hiccups, but subsequently, the market has started moving up based on the liquidity sloshing around in the market. As a whole, the market has seen a generous increase in the activity. The value of the investment has gone up to 30-40 per cent during the last 4-5 months. Another good thing that the market has seen is the entry of new investors. Around 30 lakh new investors have entered the markets for the first time. These are the investors who never stepped a foot in the market earlier.

To guide these new investors, Exchange regularly conducts investor awareness programmes where investors are made familiar with stock market processes, precautions they need to take while investing and other basic information. Now, these programmes have gone digital. Besides, there are a large number of tools from the Fintechs that are making sifting through large data and make a sense of the situation. The decision support systems come as a relief for these investors. These tools help them make decisions more effectively. This is precisely why the market is sustaining and growing. Earlier, there was a bit of a worry that the mutual funds inflows will come down. But it did sustain the blow. The Systematic Investment Plan (SIP) sustained close to Rs.8,000 crores every month. This certainly is a very positive sign. Investors are using Mutual Funds, ETFs and direct investment routes too. The investment culture is grown way beyond what was expected.

CC: Some of the sectors like the Initial Public Offering (IPO), Small and medium-sized enterprises (SMEs) and others did face a blow due to the pandemic. Only three IPOs have been launched in 2020, while 83 per cent of respondents reported a decline in revenues while over 70 per cent saw an overall fall in investment during the COVID-19 period. Any word on when these sectors will be up and running?

The IPO market has not been in a great shape even before the pandemic. The lockdown has made new issuances that are a lot more difficult because of the impact on the general economy. The offerings that are coming into the market have taken a hit, which is why only a few companies are coming to the market. This is one side which will hopefully return to normalcy in due course of time. Another sector which has taken a hit is the SMEs where the impact has been rather severe. Our government is trying to intervene with a series of steps, which will hopefully come as a relief for the SME sector over the next few months. I am guessing by mid-2021, SMEs should be back to winning ways.

So far, the Indian economic growth predominantly relies on the bank-based funding model, unlike the United States where most of the funding comes through the markets. Going forward, this situation is going to change in our country because the banks themselves are facing some issues. We believe, that post-pandemic, markets will play a crucial role in financing the corporate sector both the large corporates and SMEs. This is one area where a large amount of movement will be seen.

CC: How did the lockdown treat you? How did you adapt to the new normal?

My work is such that it can be done from anywhere. Even before the pandemic, I could work from anywhere. As long as the work is done, the location does not matter. That way the lockdown did not quite affect my work. Even during the lockdown, I have been going to the office on alternative days to keep things on track. On the rest of the days, I operate from my house. On a personal front, this lockdown has come as a boon for me. Since the travel time has been cut off, I’m using that time to focus on my health. I do exercise a lot, which wasn’t the case before. Thanks to the diet and my workout, I was able to shed off 10 kgs. That in fact, is keeping me on my toes.

"GST is a requirement for the modern economy. Every economy that’s looking for modernisation should be seriously looking at GST which will take care of multiple inefficiencies"

CC: The tension between India and China has always been there. After the recent comeback by India (banning the apps) and the fact that China has invested in several of our industries, how would this war with our counterpart affect our economy?

It is difficult to control a situation or its outcome. But with the right attitude, we can certainly control the way we deal with the situation. Considering that Atmanirbhar Bharat is becoming the new norm, I feel that this is a great chance for all the entrepreneurs and industries to showcase their capabilities. Our country has a lot of potential and our entrepreneurs should be leveraged in manufacturing and services sectors. In a way, it’s good as it pushes our country to produce the things that we need. Most of the growth so far has been on the back of globalisation which has tied the world in a unified supply chain. The pandemic has disrupted this global supply chain model. Going forward firms will try to mix of the local and international supply chains. It will also give a boost for Make in India where the entrepreneurs, service sector, manufacturers and other sectors will find ways to fulfil the local demand. Rather, we should capitalise on this situation to make India self-reliant in critical areas of the economy.

CC: Should we be worried about our future considering the various trade feuds that are going on?

We are essentially a self-sufficient economy to a large extent. We have a huge market out there and we will sure surely bounce back in no time. No country can live in isolation which is why we have ties with several countries. There is tremendous potential within the country which needs to be unearthed. So, it’s a question of how exactly we can address these problem areas. There are measures that we could take to boost the economy. The government has taken this issue seriously and is addressing the needs. They have consulted the respective industries and financial select sector. Series of inputs have been given by the industries and part of which I’m sure is already acted upon. Worrying about the future won’t do us any good. Rather we should be part of the solution. I guess that is what would safeguard our future.

CC: We are well aware that the Goods and Services Tax (GST) has been implemented long ago. But since you hail from such a charismatic sector, we need to understand your interpretations on the same.

GST is a requirement for the modern economy. Every economy that’s looking for modernisation should be seriously looking at GST which will take care of multiple inefficiencies. Almost every single major economy has done it. And it is not an easy tax to be implemented. The linkages are significantly complex. It takes time and it took time for us to get used to it. By now most of the issues are taken care of. There are some areas which need attention, I am sure that the government, GST council and network are working on it. It does need a tad bit more of fine-tuning which will happen soon.

Talking about demonetisation, one of the positive outcomes is in a way the significant move towards the digital-based exchange of money. It had to move towards the direction of digitalisation. I am glad that a significant number of things have already changed. The instant transfer of money has been a game-changer courtesy of the technology being used.

CC: Although trading is tough, some people are attracted to stocks or equities. So, do you have any tips for freshers who are hoping for the ‘Law of Attraction’ in trading to work in their favour?

A new investor needs to go via collective schemes. There are mutual funds where various schemes are available. An investor has various options to choose from the stock market.

1. Exchange Traded Funds (ETFs)

One of the effective ways of investment is ETFs. It is essentially a mutual fund scheme that tracks an index and is listed on the exchange so that investors can buy and sell the units without going to the MF. Since ETFs are passive and track an index, the annual maintenance charges are extremely low. Now ETFs are available at 8-9 basis points whereas MF can charge up to 2.5 annual AMC. ETFs are significantly cheaper, which translates into better market returns. NSE’s flagship product is Nifty which contains 50 top companies of India. So, essentially if you buy a Nifty ETF, you’ll get a look into 50 of India’s top companies at an AMC of less than 9 basis points. And at any time, the investor could sell the units and the money is back in their accounts. There are products avail able like this which help investors, who have no knowledge or inclination towards stocks.

2. Government bonds

Let’s not forget that there are numerous other products which could give a better worth for the investors’ money. People usually invest their money into bank deposits. Instead, there’s an alternative where you can lend the money to the government by buying Government of India bonds. These government bonds are available at an auction held by the Reserve Bank of India (RBI) every week. Investors can easily participate in these weekly auctions through their broking accounts to acquire government bonds. These bonds are low-risk and provide reasonable return assets which risk-averse investors could participate.

3. Corporate bonds

There are products in the fixed income section but it comes with a slightly higher risk as compared to government bonds – corporate bonds. Considering the risk profile, investors can purchase the bonds. It typically offers a higher yield. Some products can be created and offered to the investors that match their profile as well.

Frankly, a lot of people don’t have enough knowledge about finance and investments. Managing personal finance is not difficult. One needs to be clear of what one wants to achieve with their investments. For that, we are trying to build various tools in a digital format to make people’s life easy while investing. There are an ocean full options, we just need to figure out which one would give us the best return considering the amount of risk one is willing to take.

"We believe, that post-pandemic, markets will play a crucial role in financing the corporate sector both the large corporates and SMEs"

CC: Before the COVID-19 scenario, the market saw the launches of several new cars. People were even pre-booking their cars well in advance. But even after all this why was there a slump experienced by the auto sector?

There wasn’t much of a slump, but you could say that the sector was undergoing a change. The Finance Minister had addressed some of the issues that this sector is facing. One of the biggest issues is of the demand profile which the sector is trying to cope up with. Any industry for that matter goes through this sort of a change. Currently, the population of millennials in our country is about 50 per cent. Their needs and aspirations are different than what ours were. They don’t intend to own a car when there are several car services available at their doorstep. Mobility is available as a service which has transformed this sector. Come to think of it, car ownership is not a necessary condition for mobility. Things will change in the coming months though.

Electric Vehicles are slowly becoming the talk of the town. However, the transformation from internal combustion to EVs will happen gradually. The best and efficient way of transformation is still in debate. But for EVs to succeed we need to have that kind of infrastructure. While this transformation is happening, there will be a few heartaches for people which they need to manage. Change is constant, but the pace at which it is happening these days is quite significant owing to technology.

CC: Economic slowdown, recession, pandemic and several other uncertainties are leaving people worried. So, can a common person put his/her fear to rest and recession-proof their investment?

Investments are based on a person’s dreams and goals. According to that, one must find a portfolio that best suits their interest. In the long run, equity is a cut above the rest, as it provides better returns than any other investment opportunities. The wealth that the investor has earned is his or her priciest possession and who better than them would know how and where to invest it. A little background study about the market will do good to them and help them find the magic formula of their investment. It could include aspects like equity, gold, real estate or fixed income. The investor should find the perfect combination that works for them. And that probably could be a key to recession-proof their investment.

Golden rules that the capital market runs on

Keep reinventing

This market never forgives anyone who feels they have achieved everything. It’s like you are on a treadmill and you need to keep on reinventing.

Make yourself relevant to the market

Keep yourself updated. Be there at the cutting edge of technology.

Understand your investors and customers

Keep the customer at the center. Get hang of what they want and deliver that without any hassle.

CC: The launch of the Social Stock Exchange (SSE) may mark a new chapter and could certainly impact India’s financial condition. What are your views on the same?

It’s an important initiative announced by the Finance Minister. SSE would bring in transparency to the impact investing space. At present work is happening at various levels to make SSE a reality. Interests of donors or investors on one hand and NGO and for-profit social enterprises have to be balanced to achieve the right kind of structure for this exchange. There are ways, even within the mainline of investing, where a fair amount of focus is on the Environmental, Social, and Corporate Governance (ESG) as well. In a larger sense, the Corporate Social Responsibility (CSR) is a company’s efforts to make a positive impact on its employees, consumers, the environment and wider community. And ESG, on the other hand, measures these activities to arrive at a more precise assessment of a company’s actions. ESG specific indices which are created and specific investment philosophies are being deployed with a precise set of goals.

CC: Climate change is a great concern. How is the ESG handling the pressure?

Currently, yes, it’s one of the greatest concerns and has to be addressed on priority. The ESG sector is trying its best to live up to the expectations. One estimate puts the requirement of funds at some 4.2 trillion dollars by 2040 to fight the climate change effectively. That kind of money cannot come from the government alone, private sources have to pitch in as well. A lot of funding will happen through markets rather than banks. That’s where I think everyone has to pitch into taming the adverse impact of climate change on our lives.