Stock Broking: Technology and Customer Service Will Give The Edge!

Broking industry is often perceived to be profitable when equity prices go up. Yogesh Supekar delves deeply into the industry fortunes and understands the challenges faced by the industry, while Nikita Singh interacts with the leaders of the industry.

Prateek Tagad, a young investor in his mid-twenties who has been investing in stocks since last three years, is extremely tech-savvy and is comfortable trading equities using his mobile app. Prateek is a big fan of the newest forms of discount brokers and religiously trades through one of them. Says Prateek, "It doesn't make sense to pay higher brokerage when the services are available from discount brokers at throwaway prices. In the long run, the cost matters."Many investors share the same view as Prateek and the same is reflected in the decent growth in the volumes clocked by the discount brokers in India. Discount broking is not only for the market-savvy traders. Few discount brokers are able to attract the beginners by handholding them and ensuring that the new investors understand the dynamics of stock trading .

While the sun is shining for those discount brokers who are able to gain market share by offering services at the cheapest possible rates, it is not all gloomy for full service broker. For instance, Anil Puri who is an HNI and the owner of Sai Dham Internationl Hotel in Delhi, does not believe in discount broking. "I want my hardearned money to grow at a steady pace and I expect top-notch customised services from my broker, which includes research ideas and market momentum studies. I want to know if I can call my broker anytime during the day and be guided on market trend. It helps."

In today's market, there are opportunities galore for both the types of brokers, viz., discount and full-service brokers, as different types of investors demand different types of services from the broker.

Stock broking industry in India 

The stock broking industry in India is one of the most dynamic industries even as it shows signs of maturity and high levels of competition. The industry, which is a collection of technology-driven stock, commodity and currency brokers, has shown signs of growth in FY18 owing mainly due to extremely bullish market sentiments.

Competitive Landscape : Despite the high competition, the broking industry over the years has consolidated in favour of larger brokers. As a result, the market share of the top five brokers increased from 14 per cent of the trading turnover in the NSE cash equities market in FY13 to 19 per cent in the six months ended September 30, 2017. The top 25 brokers accounted for about 51 per cent of the trading turnover on the NSE cash equities market in the six months ended September 30, 2017, and 34 per cent and 48 per cent on the NSE futures and options markets, respectively, for FY2016.

Growth Potential : As per CRISIL Research estimates, the Indian equity broking industry revenues are projected to increase at 15-18 per cent CAGR in the next five years and are expected to reach Rs.300 billion by FY2022, driven mainly by the continued uptick in trading volumes and increasing participation of retail investors.

Key Industry Themes 

1) Rising retail participation
2) Increasing share of internet and mobile trading
3) Increasing depository accounts
4) Institutional investment into equities
5) Full service brokerages continue to maintain market leadership

Review of FY18: Market volume increased in FY18 

Building on the strong performance in FY17, the domestic capital market reported a robust performance in FY18 on the back of robust equity inflows by the domestic institutional investors (DIIs). The equity turnover on the exchanges increased from Rs.1004 trillion in FY17 to Rs.1733 trillion in FY18, registering a whopping growth of 73 per cent. The average daily turnover (ADTO) jumped to Rs.7.04 trillion from Rs.4.05 trillion during the same period, registering a staggering growth of 74 per cent. 

Commodity markets remain tepid: 

Following the trend post-demonetisation, the commodity markets continued their downward slide in Q1 FY18. However, the volumes picked up in the following quarters. The commodity markets registered a turnover of Rs.44 trillion in 9MFY18, registering a de-growth of 15 per cent as compared to the turnover of Rs.52 trillion during the same period previous fiscal. However, the currency trading volumes increased to Rs.69 trillion in 9MFY18 from Rs.64 trillion in 9MFY17, registering a growth of 8 per cent.

In order to increase participation in the commodity markets and to enhance liquidity and depth in the markets, SEBI recognised the need to allow institutional participation in commodities. The regulatory body allowed alternative investment funds and FPIs to invest in commodities in July 2017 and September 2017, respectively, and released a consultation paper regarding participation of mutual funds in the segment for public comments in December 2017. Also, the RBI allowed banks to participate in commodity broking through their subsidiaries. Another development in the commodities market has been the introduction of commodity options, with the launch of gold options in October 2017. Although the current trading levels remain limited, the addition of more products and investors in the commodity segment bodes well for the markets going forward.

Equity markets dominated by the derivatives segment: The growth in the turnover in FY18 was led by the derivatives (F&O) segment, which witnessed a 76 per cent growth in ADTO vis-à-vis 36 per cent in FY17. The share of the derivative segment in the total market turnover increased further to 95 per cent in FY18, from 94 per cent in FY17. The total turnover for the derivatives segment increased to Rs.1,650 trillion in FY18 with an ADTO of Rs.6.7 trillion, as against Rs.944 trillion with ADTO of Rs.3.80 trillion in FY17, showing a growth of 76 per cent.

The options growth rate remained healthy in FY18, registering YoY growth of 85 per cent, as against 33 per cent and 39 per cent for the futures and cash segments, respectively. The options segment remains the most active in the derivatives market, accounting for 86 per cent of the derivatives turnover in FY18 as against 84 per cent in FY2017.

The cash market turnover reported a healthy growth in FY18, with a total traded volume of Rs.83 trillion as against Rs.61 trillion in FY17, registering a YoY growth of 37 per cent. The growth can be attributed to the rising capital markets, steady flow of initial public offerings (IPOs), and the gradual trend of financialisation of savings as seen by the increase mutual fund inflows, particularly through systematic investment plans (SIPs). The cash segment ADTO increased to Rs.0.34 trillion from Rs.0.32 trillion during the same period.

Robust resource mobilization: 

After a healthy performance in FY17, the resource mobilisation in equity markets has picked up further in 9MFY18 through a mix of channels like public issuances including IPOs, FPOs, rights issues, qualified institutional placements and preferential placements. Supported by the favourable capital markets and rising valuations, about Rs.1609 billion was raised during 9MFY18 through 321 issuances, registering near about 80 per cent growth over the funds raised in FY17.

Outlook for FY19: Moderate growth expected 

The markets and investor sentiment is expected to remain susceptible to events like the outcome of impending state elections, aggravation of geopolitical tensions, uptick in crude prices and hike in rates by the US Federal Reserve, among others, which could impact FPI inflows. In spite of the expected volatility in the near term, the outlook for FY19 remains stable to positive on the back of increasing financialisation of savings, strong inflows from the DII segment and the government's progress on economic reforms. Over the last few years, the increasing prominence of the DII segment has provided the much-needed resilience to the capital markets. The retail participation is expected to remain stable, supported by the IPO pipeline. The higher yielding cash volumes are expected to get a boost, with margin trading being offered by more brokerage houses. This would also help support the income profile of full-service brokerage houses, given the price-based competition from discount brokerage houses. Going forward, factoring in an elongated period of volatility, along with possible correction in valuations over the near term, the growth in broking industry's income is expected to be moderate.

Robo-advisory 

Hustled by the penetration of artificial intelligence, robots have found their place in the financial markets as well. Automated services based on computer algorithms or robo-advisors collect relevant information of the investors including age, financial goals, and other information to provide investment advice. With India 's bolstered investment appetite, higher penetration of stock markets and new generation investors, robo-advisory is set to take the cake , equipped with easy and convenient services.

Robo-advisors that largely promote do-it-yourself investments, involve no human interactions and only work on mathematical equations to provide customised investment advice, keeping in view the investors' risk profile. Being foreseen as a tool to level up investment enthusiasm in India, the low-cost advisory could be an apt window for the untapped and growing Indian financial markets.

These artificial money managers engage in accomplishing financial goals such as retirement, saving, tax planning or regular investment. Besides goal-based advisory, some of these platforms also provide automated investment packages such as ‘Scripbox', an online MF investment service firm. Some of the companies such as Invezta.com, Bharosaclub.com and Orowealth.com provide a range of low-cost direct plans as well for the investors to choose from . Certain bigger firms such as Aditya Birla Group are also foraying into full-service robo-advisory. Aditya Birla Group recently launched Aditya Birla MyUniverse that allows the investors to link their bank accounts, credit cards, investment and loans to the platform and thereby provide analytical reports about the investor 's financial health, expense management, risk appetite, net worth and among others. However, the focus is still more on mutual funds and ETFs owing to their transparency, stable returns and greater accessibility. However, despite seeming as a convenient and low-cost option, the lack of human touch and understanding remains the main disadvantage of the robo-advisory platforms. While major financial institutions are also heading towards the use of artificial intelligence in their day-to-day operations, this gap of the lack of human interface is being met by enhancing the quality of customisation. Mastering the shortcomings, the robo-advisory industry is set to tap the vast expanse of unexplored markets and is here to grow.

Shilpa Kumar
MD and CEO, ICICI Securities 

What is your outlook on the broking industry? 

In India, household saving is shifting from physical to financial assets. The share of financial savings as a proportion of household income has increased to 41 per cent in 2016 from 31 per cent in 2012. This is expected to rise further. India has historically high saving rate — 19% of GDP, versus 9% in the US, 6% in Brazil and 9% global average in 2016.

The improving economic conditions, low interest rates and stable inflation will further channel the financial savings towards direct equity investments and investments in mutual funds and insurance, benefiting the capital markets, mutual fund and insurance-related companies. The companies with wide distribution networks and strong technology platforms are expected to be key beneficiaries of higher financial savings.

What are the growth drivers for your company? 

Some of our growth drivers are:
1. Increase in formalisation and equitisation of household savings
2. Regulatory framework biased towards non-physical form of savings
3. Retail participation in equities and equity-related instruments rising.
4. Digital India — platforms like ours are a beneficiary of cheap mobile devices and data.
5. Robust technological platform — icicidirect.com is India's largest equity trading platform with over 40 lakh operational accounts. As more and more people come online, our platform can accommodate the growing client base without the need for commensurate investment.
6. Geographical reach — we have the widest reach amongst Indian brokers. We have our own presence in 75+ cities through 200+ branches and over 4,600 sub-broker network.
7. Diversified customer base — retail brokerage revenue at 90% of our brokerage income, 40% revenue comes from customers with us for 10 years or more

In the recent past, we have seen signs of rising penetration of equity market beyond the big cities. Going forward, what is your expectation from the smaller towns?

There has been a significant growth in size and value in Indian stock markets since the financial liberalisation in1990s. With the progress in Indian economy and with government's focus on sustainable development, there will be maximum participation from almost all sections of the society. Equity markets provide higher risk-adjusted returns and tend to outperform other asset classes in the long run. Hence, developing equity markets through increased retail participation has both social and individual benefits. India's retail investor participation is likely to increase as per capita income in the country rises. According to one of SEBI's Investor Surveys, households with similar education and income in urban areas tend to invest significantly more in markets than those in rural areas.

However, smaller towns in India account for about 41% of India's e-commerce business. Similarly, in investment, their behaviour is changing. Their choice of investment in traditional assets like gold, bank deposits etc. is now changing towards mutual funds and stock markets. The recent increase in mutual fund investment in India was fuelled by investors in tier-2 and tier-3 cities and towns. The investors in smaller towns are now looking forward to equity products to get inflationadjusted returns.

The smart devices (smart phones) with access to live market data has been a boon for the investors. Presently, how much percentage does mobile trading contribute to your average daily turnover? 

We are a big beneficiary of digitisation and penetration of smart phones. Over 90% transactions happen on our platform without any human intervention from our end, which means customers finish the trade themselves. As per the NSE data for FY16, 2.2% of overall NSE trade happened on mobile data, up from 0.4% in FY16. Currently, about 20% to 25% of the equity turnover in contributed through our mobile platform.

Prasanth Prabhakaran
Sr. President and CEO, YES Securities (I) Ltd 

How is the client acquisition and volume likely to be for the brokers in CY18 as compared to CY17? 

With the long term trend in the Indian economy and, consequently, the Indian capital market continues to be bullish, our anticipation is that clientele acquisition will continue to have high double digit growth figures in the overall demat accounts getting opened in CY18.

What have been the main growth drivers for you in FY18? 

I predominantly see three main reasons for this anticipated growth:
a. Equity being finally perceived as a long term option for wealth creation. Other traditional illiquid asset classes like real estate, gold, etc. are losing favour among the retail populace. Hence, the strong equity domestic flows that happened in CY17 would continue to gather pace as the overall universe of retail investors in the secondary markets, either by way of direct equity or through mutual funds, is still very low.
 b. A strong reforms agenda undertaken by the present government would surely show a more robust growth in the Indian economy, which invariably would drive the domestic liquidity cycle in the capital markets.
c. Lastly, the much-anticipated growth in earnings finally playing out in the last three quarters would give strength to the consolidating capital markets.

Do you think Indian investors are ready to pay for research reports? 

It is first important for provider of the advisory service to ensure that the quality of advice delivered leads to higher returns for the investors. Hence, once the accountability of advisory service is well-established, then we are sure that Indian investors wouldn't mind paying for service. After all, it is the same Indian investor who is willing to pay a management fee/ entry load for a PMS/mutual fund.

What is your opinion on the prospects of robo-advisory in India? 

With retail participation on the rise, it is imperative that quality advice disseminated through use of cutting-edge technology would be the norm in the investment world. Robo advisory is the way to go in case an advisory firm wants to service large number of retail investors and groom them to create wealth/ meet investment goals based on their risk profile.

Anirudh Damani,
Managing Partner, Artha Venture Fund 

Institutional broking has a good moat due to the relationship-oriented nature of the business. In addition to this, the sharp rise in capital markets and record high inflows of capital into MFs have catalysed revenues even further. These brokers are in a much better position financially and in terms of sustainability, since the economy is gaining strength. In my opinion, the scenario for institutional broking doesn't seem likely to change in the next 3-5 years at the very least.

Prakarsh Gagdani
CEO, 5Paisa Capital Ltd. 

How has FY18 been in terms of new client acquisition and trading volumes for your company? 

The company has seen a robust growth in customer acquisitions, recording a 6x growth over the past year. Customer acquisition continues to be a key focus for the company, along with superior customer experience and service. The revenues have seen strong and sustained growth, recording a leap of three times over the previous year. The company's healthy performance has led it to achieve a 1% share of daily cash turnover within a short span of two years.

How is digitisation influencing your marketing strategy? 

Digitisation is the core of our business. Being the first fintech company to be listed on the bourses, 5Paisa Capital remains an innovator. Our focus on building a robust and advanced app has resulted in 5Paisa app being the most preferred discount broking app in India with over 900,000 downloads in less than two years. One can open their account with us in flat three minutes if they are e-KYC compliant. We are developing further customer-friendly opportunities backed by use of Artificial Intelligence and Big Data.

Does your company believe in the merits of robo-advisory? What are the limitations of robo-advisory and how do you overcome it? 

Robo-advisory is becoming a significant tool in financial decision-making. It reduces the chances of error in financial advisory and allows the customer to take a more informed decision. Besides, it gives a holistic picture about your finances and shows your financial future at the click of a mouse. We as a digital start-up completely believe in Robo Advisory as a solution. For us, 30% of investments currently in mutual fund comes through this solution. We are continuously working on it to make it more intelligent. Robo Advisory singlehandedly removes dependency on manual advisory, which sometimes leads to wrong investments.

Are more and more of your clients using mobile trading option to transact? Can you please share with us the growth numbers of mobile transactions as compared to online and offline transactions? 

We are a 'Mobile First' company. Any product that we work on is first released on the mobile app and then on the web. Today, 70% of our business happens on mobile and most of our customers prefer mobile as their medium to trade. On overall basis, 97% of our business happens online and we hardly get people doing offline trades. The trend has been the same from early days of our business and continues even now

Tejas Khoday,
Co-Founder & CEO, FYERS 

Discount brokers have little or no geographical presence as compared to traditional brokers due to their business model. As opposed to the hub & spoke traditional model, which is based on sub-brokers advising clients on what to trade/invest in, online brokers follow a direct to consumer model, which has its own pros and cons. One of the things is that there is less visibility and outreach is that much harder.

V Balasubramaniam
MD & CEO, India International Exchange (INX) 

What is India International Exchange and what are the products available? 

India International Exchange (IFSC) Limited (India INX) is India's first international exchange to be set up in the International Financial Services Centre (IFSC) located at the Gujarat International Finance Tec-City (GIFT City). India INX offers a single platform for trading on multiple assets, viz. equities, commodities, currencies and interest rate derivatives. We were the first to introduce gold options in India. To address the requirements for Indian and foreign issuers to raise debt from global investors, India INX has been the first to set up a primary market platform, the Global Securities Market. India INX's clearing arm, the India International Clearing Corporation (IFSC) Limited (India ICC) is the first to offer international market participants an ability to settle trades seamlessly through ICSDs (International Central Securities Depositories). This has been enabled through Clearstream, which also facilitates accepting foreign securities as collateral. India INX Futures are currently available on the SENSEX, SENSEX 50, Gold, Silver, Brent Crude Oil, Euro dollar, British Pound, Japanese Yen, 107 Indian equity stocks as well as international equities such as Apple, Microsoft, Facebook, Google and JP Morgan. Option contracts have also been launched on several of these products. Several other innovative products are in the pipeline.

How has the trading turnover picked up over past one year? 

India INX is the leading exchange in IFSC GIFT City with marketshare of 85% in the derivatives segment in April 2018. As on April 19, 2018, the cumulative trading volume of India INX derivatives segment has crossed 2.04 million contracts with the cumulative trading turnover surpassing Rs.218,326 crore (USD 33.2 billion) since commencing operations on January 16, 2017. On April 16, 2018, the daily trading turnover of the exchange surpassed Rs.3,460 crore (USD 528.7 million) for the first time. Peak daily trading volume of 32,689 lots was reached on April 12, 2018.The trading volume has increased by a compounded monthly growth rate of about 50% in the last one year.

What is the unique proposition that India INX has to offer to global investing community? 

Our value proposition is unique in more ways than one when compared to other international exchanges. The highlights of our key value propositions are -

1. First universal exchange at GIFT IFSC offering derivatives trading across asset classes and primary market fund raising services

2. Balanced product portfolio across all major asset classes - cash equity and equity derivatives, commodities derivatives, currency derivatives, interest rate derivatives either already on offer or in the pipeline to be introduced.

3. India INX was the first to launch S&P BSE SENSEX50, an index for top 50 equities in India. The exchange has been clocking daily trading turnover in the range of USD175+ million on S&P BSE SENSEX50 derivatives contracts since Dec 2017.

4. Ability to invest on Indian market without having to take any currency risk. Top 107 single stock futures and options on Indian equities available to trade at India INX

5. 22 hours of non-stop market access - opportunity to react to any change across globe through investment/hedge/ arbitrage

6. State-of-the-art technology platform of Eurex T7 offering a median response time of 4 microseconds

7. Most competitively priced international exchange. The cost of transacting at India INX is negligible making it the lowest cost trading venue for Indian securities.

8. Strong risk management practices with twice daily mark-tomarket settlements conducted by the India International Clearing Corporation (IFSC) Ltd (India ICC), which acts as a central counterparty to every transaction done on INX platform and a margin framework which is comparable to the best exchanges/CCPs in Asia.

9. A dedicated Default Fund and Default Waterfall with limited liability for non-defaulting members

10. Single segment for all products leads to rationalisation of margins, single, net settlement across products, thus ensuring optimal use of capital.

11. Algo, colo, direct market access and sponsored market access available — ability to connect and trade in India INX from anywhere in the globe with variety of options

12. Real time price and transaction data feed available from India INX as well as from multiple data service vendors.

Pankaj Karde ,
Systematix Shares 

What are the growth drivers for the broking industry in India? 

The broking industry in India is seeing challenges of falling brokerage rates in both Institutional and non-institutional businesses. Diversification and value-addition are the key growth drivers for the broking industry. The clients on the non-institutional side have become more and more educated and the service levels required are as good as for an institutional client. To summarise on the key drivers, I believe that stock broking both institutional and non-institutional and wealth management services would be the key growth drivers.

How is technology shaping the broking industry? 

Technology has been one of the key growth drivers for the broking business in India. Third party execution platforms provide seamless and superior order execution. Execution platforms on web and mobile have given flexibility to trade in equities from anywhere without getting into the hassles of calling the broker. Apart from execution, these platforms also provide research and stock ideas and other market information, which further educates the investor.

Is wealth management the new growth engine for full-service brokers in India? 

Yes, wealth management has been one of the fastest growing businesses in India. The business provides services to investors who have money but do not have enough knowledge. Wealth management has also helped in improving the AUMs of funds and hence it is a very exciting business to be in.

Samriddhi Choudhury
AVP, Corporate Ratings, ICRA Ltd 

Have discount brokers grown at a faster rate? 

The discount brokers, being a relatively new entrant in the industry as compared to the traditional brokers, currently account for a modest share of total broking clientele. However, these entities focus on the large volume traders and thus the share in terms of broking turnover would be higher. The technology-based model, no-frill service offering and a remote/ minimal client interface makes the ramp-up of operations easier as compared to traditional broking, which relies on physical presence. Furthermore, given their relatively smaller scale (being a new segment), the growth is expected to be higher than industry average owing to the lower base. The same can be evidenced in the significant increase in the clientele of the discount brokers, far exceeding the industry growth. The total number of active clients increased by 39% in FY2018. As against this, the active clients for Zerodha, RSKV and Samco Securities together more than tripled (growth of 206%) during this period.

How many new brokers started operations in FY18 in India? 

The total number of brokers registered with SEBI in the cash segment increased from 3,192 as of March 31, 2017 to 3,197 as of February 28, 2018 (net addition of 5 brokers). However, this data refers to the net additions and the details on the licences surrendered during the year is currently not available. The number of brokers who started operations would be higher if the surrender of licences are considered. For instance, during FY2017, 60 stock brokers were registered with SEBI, while 128 brokers surrendered their licence.

Hiten Shah,
Sub broker, Kotak securities 

We at Hiten Shah Financial Advisors focus on client relationship. We don't make client over-trade, so he doesn't suffer any losses. This strategy helps us in getting lot many references from our existing clients themselves.

Dinesh Thakkar
CMD, Tradebulls Securities (P) Limited 

How have the trading volumes grown for Tradebulls in FY18? Do you see the trading volumes improve in FY19 when compared to FY18? 

The last fiscal year 2017-18 saw our cash market volumes steadying, but we saw 22% growth traction in our futures & options business. With the markets being volatile in the midst of a structural upmove, there were tremendous opportunities to trade in the F&O segment. We had also given a major thrust to F&O research and that has been instrumental in pushing Tradebulls' volumes in a substantial way. At Tradebulls, we believe that the 22% growth in F&O volumes in the last fiscal is only the tip of the iceberg. We see a much more meaningful growth in volumes in the cash segment as well as in the F&O segment in the FY2018-19. Our growth in cash and F&O volumes in FY2018-19 will be predicated on three factors. Firstly, there will be a big thrust on client acquisition at an aggressive pace and with minimal cost. Secondly, we plan to fine-tune our research offerings to make them more actionable for clients. Thirdly, we are putting in place top-of-the-line risk management system (RMS) which will enable us to scale up our operations with minimal incremental risk.

How is technology dominating the industry profitability? 

If you look at the growth in mutual fund systematic investment plans (SIP), it has growth by 53% in FY2017-18 compared to the previous fiscal. That shows one thing; that Indian investors are taking their long term goals and their long term planning very seriously. They have also realised that their financial future will depend on how they embrace risk in a calibrated way. For brokers like Tradebulls, it opens up a huge opportunity to rethink our entire distribution activity along advisory lines. India is likely to enjoy demographic dividends at least till 2050. That means there will be a huge army of young income earners who will be consistently entering the investment game. The solution for them has to be a mix of adept use of technology and granular advice that is customised. We expect that profitability in the coming years will be driven by how well we are able to leverage technology and personalise advice to our investors. That is our focus for 2018-19 and we expect that to be revenue accretive and profit accretive for us.

Has derivatives segment seen faster growth than the cash segment in FY18? 

Yes it has. While our derivatives business saw a growth of 22% on a YOY basis, cash volumes have been almost flat. That is more because the F&O business achieved critical mass last year and the benefits were visible in the form of higher volumes. In the coming year, we expect traction on the cash business and the F&O business.

Dhiraj Relli
MD & CEO, HDFC securities 

What steps have traditional brokers taken to get an edge over the discount brokers? 

Discount brokers have resulted in the creation of a certain level of competition amongst traditional players. However, traders/ investors need to scale down their expectations when dealing with this category of brokers. We have had a number of instances when clients have returned to us when their high expectations from the switch over to discount brokers were not met. Full-service brokers have continued to invest in technology (to offer a superior experience to users, like the ‘online IPO platform'), people (to offer better research, customer care services, etc), and have offered a customised bouquet of transaction rates for different users, based on their expected level of services.

The recent failure of a couple of discount brokers throws up questions about their business models and also the people operating them. Regulators should recognise this issue and realise that there is no such thing as a free lunch--a very good example of which is the Facebook episode. Full-service brokers offer a number of services that discount brokers do not. This differentiated value proposition is realised gradually by clients, except for a few who only need an execution platform and no advice or interaction with the broker.

Currently, we are witnessing a highly volatile scenario in the equity markets across the globe. How has been the retail mood and participation in general? 

Retail investors like periods that are extremely bullish, especially in small/mid-caps (as when they feel left out, they can start trading or investing to keep pace with their peers). They also like days when equity markets witness a sharp decline, as they can then procure stocks that they have been tracking at bargain prices.In case the markets remain sideways (or volatile in a range) for long, they refrain from increasing their positions. The activity/mood of retail participation lately confirms the above facets.

Can you elaborate on how you are spreading awareness about the capital market among the financially illiterate masses, especially in small towns and remote villages?

 We have been doing a lot of things digitally to spread awareness amongst equity investors. Apart from this, we also (jointly with NSDL/CDSL) conduct investor awareness sessions in tier-2 and tier-3 locations. We have witnessed an encouraging response to these initiatives .

Harendra Kumar
MD, Institutional Equities, Elara Capital 

Are discount brokers growing profitably? 

Difficult to say, as it is a niche segment with not much history in India. Internationally, they are big. Firms like Charles Schwab, etrade, etc. are good examples with a profitable track record across cycles. India is also likely to see this trend as investors and traders engage brokers who suit their needs.

Which factors in your view are crucial for the rise in volumes going ahead for an institutional broker like yourself ? 

More flows into domestic mutual funds is a very big variable for the industry. Steady inflows via SIP is a big catalyst. Also, for brokerages that are catering to FIIs, such as us, the India allocation is important. The ease of registering new FIIs, more IPOs and new equity issuances drive FII flows.

What are the major trends affecting the profitability of brokers in India? 

Diversification of savings beyond FDs and hard assets such as gold and real estate is a key driver. As savings surpluses move beyond these assets, brokers will see sustainable growth. There is also a regulatory cap imposed on mutual funds in terms of commission that can be paid out. Globally, MIFID has brought about some amount of disequilibrium in terms of payouts for research services and execution. And, of course, costs are rising and commissions are structurally moving southwards.

"The domestic capital markets revived to a certain extent after a period of lacklustre performance for 1-2 months, supported by improved market sentiment as well as growing domestic institutional investors (DIIs) participation, especially from the mutual funds, in the market. It can be further highlighted that after a successful last year, retail participation in equity markets is also showing encouraging trends" - Guiness Securities

Conclusion :- With equity culture gaining momentum in India and the anticipated increase in participation by retail investors, the broking industry is firmly on a growth trajectory. However, due to increased competition and disruption caused by technology, only a handful brokers are able to tap the opportunity.

One can expect the discount brokers to grow at a faster pace going forward. The growing list of active clients for discount brokers augurs well for the profitability of the discount brokers. Overall, the brokerage rates are expected to remain soft going forward and there are no signs of reversal in the trend in brokerages.

To sum up, the future lies with those brokers who have become efficient by focusing on technology and have a rationalised cost structure and high levels of customer support services