Stock picking gets social online

Shloka Nath

The stock market is caught in a downward spiral. Analysts’ views don’t seem to matter. Who do you turn to when you need to hear news you can use? To other like-minded people, of course! As markets tumble, social networking sites targeting stock-pickers have suddenly mushroomed.

The bull run of 2007 saw some market players use their reach to run up a stock and draw in gullible investors only to leave them high and dry. But networking sites hope their tracking mechanism and rating systems will highlight only credible tip-givers and weed out pranksters.

In recent months a series of similar sites have been launched by entrepreneurs, new media experts and financial analysts who are rebelling against the traditional investing model dominated by insiders and experts. “We want to open the valves of information to the “junta” as you would call it,” says Tushar Makhija of stockezy.com, a social investing site that was launched in August this year. “It’s all about de-jargonising investing. We take coffee conversations, the common man’s opinion and put it up on our site.”

The latest entrant is Moneyvidya.com, that made its debut on November 19 and lets investors trade stock tips, compare investing techniques and research companies.

“The Indian stock market meets Web 2.0,” is how Gautam Kshatriya, founder of Moneyvidya.com puts it. “The concept of social investing, where people discuss and share research on specific stocks, has been around for a long time in India. The internet is just making it more efficient,” says Kshatriya.

Karan Mehta, one of Moneyvidya.com’s early registered users agrees. Also a member of the Young Investors Club in Delhi, a professionally managed investor club, Mehta says traditional community forums are hampered by outdated Sebi guidelines. “Investor clubs are not officially recognised in India, so technically we fall under a partnership firm. But under the Companies Act, 1956, we can’t have more than 20 partners. Internet sites like Moneyvidya.com will do wonders for the retail investor in India by allowing for a broader forum for discussion.”

The concept may sound similar to stock message boards (online forums that allow people to "chat" with each other about stocks) like StockTalks.com. But Jagdish Bharwani, its founder, is careful to stress his site functions as a Google group. “A lot of what we do is forward reports.” Social investing sites on the other hand, aim to differ from message boards in a key way: By holding users more accountable.

Moneyvidya.com for instance, has developed a sophisticated proprietary algorithm which assigns each user a fair rating (out of 5 stars) based on the performance of their tips (example, how profitable they were, how risky they were for somebody following them). Using the wisdom of crowds, the idea is to instil a community sentiment towards stocks to quickly isolate whether the community as a whole considers it to be a prudent stock to buy, or indeed one to sell. This stands to reduce one of the biggest problems with stock message boards: people attempting to use them to manipulate stocks. It also lets users quickly determine which investors have the best track records—and who is worth paying attention to.

But one-stop shops for social networking-cum-investment are not without their sceptics. Hitesh Oberoi, COO of Naukri.com believes the biggest problem facing these sites will be generating revenue. “Most networking sites in India are frequented by mostly very young people with no great purchasing power.” It’s a sentiment echoed by Arun Kejriwal, director at Kejriwal Research and Investment Service (KRIS): “If there is no revenue, you cannot have a sustainable model. To keep good quality members and maintain interest over a continued basis, you have to provide high quality content and that doesn’t come for free. How long can you sustain your website if you don’t get money from people who come to that site?”

Druhin Dhavala, CEO of Stocksbuddy.com, another Indian social networking site that is gaining popularity amongst investors, says those looking to establish themselves must keep a long-term perspective in mind. “At this time we have a negative revenue model, but we were never intending to break even for at least another three years,” he says. Before launching, his team conducted a feasibility study in 2005-2006 and the findings were encouraging: while 8 million plus retail investors exist in India, that figure is likely to grow by 70-100 percent each year. The 2 million investors that can be described as active online are also swelling at the same percentage annually.

Generating enough traffic is also what Navin Mittal, business head for Fropper.com, one of India’s better known networking sites, sees as a potential barrier to scale and sustainability. “Where’s the need for a niche player in social networking when sites like Moneycontrol.com (India’s largest financial portal) already have an established user base and are already leveraging social networks? How will these new players wean away users from established communities?”

Current market conditions not withstanding, such concerns are still valid. But surprisingly, many see the recent volatility as a time when top-down information from analysts is likely to be spurned and bottom-up research and discussion becomes more relevant. Vishal Purohit, COO of CoreObjects sees this as a time of transformation for the retail investor. “People need to talk about the state they’re in and their larger problems. They have become disillusioned with traditional forms of advice and information.”

Shloka Nath is Senior Features Writer with the new business magazine to be launched by Network 18 in alliance with Forbes of USA