Do India’s capital markets have AI? Yes, they do. True-play AI? Ah, well, not quite.
A large part of stock market trading and execution is done using software—algorithms or algos in market parlance—with little or zero human intervention. Stock exchange data shows that well over 50 per cent of the trading volume originates from such automated trading systems. The past couple of years have seen new-age brokers like Zerodha, Smallcase, Groww, Upstoxx and Fyers, along with traditional names like ICICI Securities and Angel One, among others, focussing on artificial intelligence and machine learning (AI/ML) tools to make their platforms smarter and quicker, offering smarter trading and real-time data inputs and ‘nudges’ to help investors take more informed investment decisions.
Further, the advisory segment has been the quickest to adapt to changing technologies and has seen the influx of robo-advisory firms such as Tavaga, Kuvera, INDmoney, and Cube, among others, which dole out investment advice after processing thousands of data points using AI/ML tools. Incidentally, a large section of players believes that advisory using robos or AI/ML tools will soon dwarf traditional players as an increasing number of young investors enter the markets. “Millennials and GenZ are increasingly participating in the capital markets and this tech-savvy demographic is easily picking up new trends in the capital markets space,” says Pushpak Dagade, Founder & CEO of algo trading platform AlgoBulls.
Yet, these are quite basic in terms of AI. “Till date, algos are doing what humans are telling them to do, but going ahead they will become smarter and start thinking on their own while designing and executing strategies,” says Kunal Nandwani, Co-founder of uTrade Solutions, a company specialising in smart trading through low-latency algo platforms, and whose upcoming book Techtopia deals with AI and the future of humanity. Adds Anshul Sharan, Co-founder of Elever, a hybrid robo-advisory provider: “Overall, the use of AI in the Indian capital market is still in its early stages, but it is expected to grow in the coming years as firms continue to seek ways to improve efficiency, reduce costs, and make more informed investment decisions.”
According to Sharan, Asian markets like Japan, Hong Kong and Singapore have already embraced AI in a much bigger way than India, although India is fast catching up. “True AI penetration using deep learning was never widespread in the Indian capital market industry. We have very few companies that have the expertise to build deep learning capabilities,” says Salil Mathur, Founder of Yobee, a platform that creates proprietary algos. Indeed, the share of algos in the US (over 80-85 per cent), coupled with the presence of complex trading systems and some of the most sophisticated hedge funds and institutional investors, makes the world’s biggest economy streets ahead of most other geographies in terms of AI penetration.
What do these markets do with AI that India doesn’t? Take sentiment analysis, for instance, where the software gathers text and linguistics—from normal documents, research reports, media statements, corporate announcements, etc.—and uses natural language processing to predict future trends and structure an investment thesis, all by itself. Then, there are AI-based algos that are not only wired to stocks but are also linked to other asset classes including art, antiques, commodities and debt, among other alternative avenues, while providing a complete investment solution.
The increasing advent of AI will make many jobs redundant in the stock market. The tribe of jobbers and arbitrageurs has already become extinct. A large number of dealers—broking staff who punched orders in the system based on client orders—and relationship managers have also gone missing as investors are using AI-based apps to do daily trades and even get investment insights. Pure-play robo advisors are making human advisors redundant. Several small-sized investment advisory firms—especially in the hinterland that cater to a small set of clients—have shut shop due to the advent of cheap, even free, digital platforms.
In terms of new roles and skill sets in demand, those with a degree in computer programming or mathematics & statistics or engineering economics would be highly sought after, as they would be able to master the confluence of economics and technology. Incidentally, all leading broking houses now have a full-fledged CTO in place—a post unheard of till a few years ago.
Going ahead, as AI makes further inroads in the stock markets, the reliance on humans will diminish further, especially for plain-vanilla investments. On the other hand, highly skilled humans with specialised skill sets will design smarter machines and codes to help with complex strategies.
Sounds frighteningly logical. Or like V.I.K.I, the highly advanced supercomputer in the movie I, Robot says, “… my logic is undeniable”.
@ashishrukhaiyar
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