Good Times To Last Long For Broking Industry

Good Times To Last Long For Broking Industry

The broking industry has been the talk of the town owing to the performance of some of the leading companies on the bourses. A phenomenal jump in business and a 360 degree change in business sentiment for the broking industry have turned investment in the stocks of the broking industry a lucrative proposition. However, will the party last long enough for long-term investors or is it just a phenomenon that momentum investors could cash on? Armaan Madhani discusses in this special story why the good times for the broking industry may last longer than one imagines!

The stock broking industry has faced some of the most turbulent times in recent years. The disruption in this industry can be attributed to technology advancement and, to an extent, the change in customer preference. Now, after so many years of flat to negative growth for several stock broking companies, the outlook has changed since the onset of the pandemic. The rapid pace at which the dematerialisation accounts were opened surprised most market participants, including the stock broking companies. The best part of this supernormal growth in the past 18 odd months has been the readiness of the broking companies to scale up.

The opportunity was there, the demand for stock broking services increased and the stock broking companies, thanks to smart technology applications, were able to not only onboard but also service new clients efficiently. In fact, the role of technology was extremely crucial in allowing the broking companies to tap this windfall opportunity in the past three to five quarters. With the market size growing rapidly and expected to grow at an above average pace we can see that several new broking companies are entering the market, making the industry more competitive.


Prakarsh Gagdani,
CEO, “We have accelerated our growth already”

What is the outlook for the broking industry in India? How is technology shaping the fortunes of the broking industry?

Technology-led broking companies are the main reason why the entire broking industry was disrupted in the last two years. Currently in India, approximately 40-45 million dematerialisation accounts exist and I think half of them came in the last two years. Now, in 30-40 years of existence of the broking industry, we saw half of the additions is just the last two years – that underlines the scale of disruptions that technology-led new-age broking firms like have brought about. In a population of over 1.3 billion, we have barely scratched the surface with maybe less than 10% penetration while in the developed markets the penetration level is as high as 50%.

This all indicates multi-fold growth for many years to come. I strongly feel the outlook for the broking industry is phenomenal considering we have so much room to grow and the per capita income is also growing rapidly. With increasing income, the investible surplus will not only be higher but also the investment per customer will increase significantly. The technology-based new-age broking companies will be at the forefront of this phenomenon and going ahead there will be only a handful of brokers who will corner a large share of the market in the coming days.

How has the growth in dematerialisation accounts impacted your top-line and bottom-line?

If you see’s growth since its inception six years ago, we have been growing at the rate of minimum 100% each year in terms of new client acquisition. While in CY 2020, when the industry had a major influx, we registered over 175% growth as compared with the year earlier. In CY 2021, as opposed to the views of most of the experts that the current year would be muted in terms of growth, has managed to acquire over 110% year-on-year growth until now when it comes to adding new customers.

Our revenue growth is in line with our customer growth. When you are in a high-growth phase there is always pressure on cost. There is investment towards acquisition of customers and building a high-quality platform. The realisation of the expenditure comes over a period of 12 months. Hence, profitability for now is muted, but this muted profitability is rather not muted but an investment towards building our customer base and top-line and we are confident of growing at over 100% per annum for the next two to three years.

What is the industry’s average revenue per client? How does it compare for

Revenue per client is not publicly available data. Most players among the top five to six are privately held and hence such data is not accessible. Therefore, there can’t be any comparison. However, despite achieving scale and adding one of the highest acquisitions in a quarter we have been able to retain our revenue per customer. In the near future we will be adding more features so that the wallet share of the customer increases, which in turn will lead to higher revenue per customer. So, going ahead, with more wallet share we will increase our revenue per customer.

What are the challenges facing the broking industry in general and discount broking in particular?

The broking industry has always been a hyper-competitive industry. However, in the last two years there has been a consolidation in new customer acquisition. Broadly, the top 5-6 brokers are cornering 75-80 per cent share. But the challenge remains that broking is a competitive industry and very easily gets commoditised. So, the biggest challenge is to create a niche and build a user experience differentiated from others.

Apart from that, the second most important challenge is the digital ecosystem, which is very disruptive. Any start-up from the youngsters with some path-breaking ideas can disrupt the entire industry. For us, more than the incumbent players and players coming with different offerings, the biggest challenge remains the new start-ups. That is how the digital ecosystem works and that is why everyone should always be on the toes regarding the disruptions happening in the industry.

What is the growth outlook for and what steps are being taken to increase your market share?

We are in a hyper-growth phase. We raised funds of around Rs 250 crore in May this year. The reasons for raising funds were to power customer acquisition and enhance technological capabilities. We have accelerated our growth already with the July-September quarter seeing record customer acquisitions in excess of 3.42 lakhs, registering a whopping 23 per cent quarter-on-quarter growth. We are confident of surpassing our numbers both in terms of customer acquisition and revenue.

We are a product-focused company and our mobile app is our main product. For us it’s a continuous activity to add products and features which benefits customers. Very recently we have added stock SIP. We believe that stock SIP is a very good product for retail customers, especially when the markets are at an all-time high. Such kind of features along with tools and platform for derivative traders will help us to improve our market share in the near future.

A New Strategy

What is remarkable is the structural shift from the percentageled business model to flat brokerage and subscription-based model. The dominance of the discount broking firms such as Zerodha and Upstox has been the highlight of the broking industry over the past few years. If we talk in terms of market share, Zerodha and Upstox, the two most dominant discount broking players in India, managed to increase their market share from 17 per cent to 30 per cent in the past one year alone in terms of number of clients. This highlights the preference of clients for a flat broking fee. However, it is not only the flat brokerage structure that has attracted investors to such leading discount brokers.

Some prefer discount brokers owing to their user-friendly platforms while some opt for such a service due to the quick and simple account opening process. Says Ritesh Nayyar, Director, Himkunsh Motors (P) Ltd.: “I have been tracking and regularly investing in equity markets for over 15 years now. I recently opened my account with Zerodha even as I continue to use my old account with a full service broker. I opened the Zerodha account after it was recommended to me by my nephew. I am happy with the simple interface that it offers with hassle-free usage. The account opening process was very quick and simple.”

“I feel I have good control over my equity due to the CDSL safety features. However, Zerodha doesn’t offer mark to market funding for delivery options and that is the biggest drawback,” he adds. Another HNI investor, Mohit Munot, a partner with Vardhman Polyfilm and Kabeer Polymers, has this to say: “I am a second-generation equity investor and my family has been a beneficiary of the Indian equity market gains over the past three decades. My father has been investing since 1975. When it comes to choosing brokers, we value service, timely advice and trust. All this is more important than the brokerage structure and features that comes with advance technology platform, etc. As I am a long-term investor who believes in buy and hold, several features offered by new-age brokers do not excite me. Our family broker is Sunidhi Securities and Finance.”

"If we analyze the impact of the new margin regulation on products offered by broking companies, the impact seems to be nil on option trading (buying options). However, the margin requirement goes up for intraday trading, futures buying and for writing options if we consider the new margin regulations. Thus, the impact could be higher on the said products, suggesting that such margin regulation will affect negatively the ADTO"

“What I like about my broking agency is their in-depth understanding of the Indian equity market and solid advice and research. If I have to bet a large sum of money, I can always have a joint discussion with the research members and the senior person at the brokerage house. It helps a lot as I have to manage my business operations and also see to it that wealth is created through equity investments,” he adds. The discount brokerage firms are not only able to increase their market share in terms of getting on board new clients but have also posted an increase in average daily turnover (ADTO). This increase in ADTO has been experienced across the industry. One reason for more participation in the direct equity market can be the increase in awareness amongst investors, especially in the Tier II cities.

Higher participation in direct equities can also be attributed to the positive momentum in the broader markets. “With prices soaring for a majority of the small-caps and mid-caps, the equity market becomes irresistible,” opines Vijay Mehta, a Rajkot-based small-time investor. “I use to participate in the equity markets mostly through mutual funds. After years of underperformance of several mutual fund schemes I thought it would be better to take matters in my own hand, do some research and then invest. So far I have beaten some of the top-performing mutual funds in the past 15 months. I understand that the markets have been friendly and this kind of performance may not be repeated, but now I am extremely confident of managing my funds,” he says.

The Performance Picture

One of the strong reasons for increased participation in the securities’ market globally has been the advent of the ‘work from home’ culture. With the unprecedented lockdown, an increasing number of investors have attempted to get started in the equity market and explore a new avenue of creating wealth. In terms of performance of the stock broking companies, they have, on an average, been able to beat the market returns on the bourses. This outperformance can be attributed to the above average growth in revenue, leading to higher PAT across the industry players.

The ROE is high for the industry with the average of top 15 players at about 26. The average return delivered by the top performing 15 broking companies is 150 per cent in one year. On a year-to-date basis the top performing broking companies have delivered close to 115 per cent.

Almondz Global Securities, Share India Securities, Daulat Securities, Monarch Networth Capital and Angel One have turned out to be the top multibagger broking companies in the past one year with Almondz Global Securities topping the list of gainers from the broking industry.


Nitish Sharma,
Global CEO, TP Global FX

How big is the forex broking business in India?

The daily volume traded on the rupee pairs is around USD 35 billion.

What are the volume trends in forex trading in India?

The volume of trading has increased over 50 per cent in the last year in the currency market due to the pandemic and the ease of trading offered by brokers. I can only see it growing exponentially with an increasing number of investors looking towards fiat currency and crypto currency to hedge inflation.

In your opinion, what features are important while selecting a broker?

There are many features that are important such as regulations, deposit and withdrawal methods, the timeframe, the number of trading pairs offered, etc. We are regulated in Vanuatu and are soon going to be regulated by a European entity. We offer over 500 trading pairs with over 25 different deposit and withdrawal methods. My message to investors is that they shouldn’t fall for fixed or guaranteed returns on their investments offered by a few brokers and be wise in investing their money. Our company mantra is ‘learn it to earn it’ and we have even developed an app through which new traders and investors can watch videos and learn and practice in the demo account offered by us with virtual money. I request everyone to learn FX before investing their hard-earned money.

"Discount brokers like Zerodha, Upstox, 5 Paisa and Angel Broking have been major beneficiaries, especially over the past one year in terms of incremental client acquisition"

Source : ICICI Direct


The trend of ‘adding new clients’ can be expected to continue for the broking industry. Increasing investors’ awareness, especially in the untapped rural areas in India, could prove to be a gamechanger for the broking industry in the coming years. Discount brokers are able to penetrate faster in Tier II cities and there is a good chance that they will spread their wings in Tier III cities and even rural regions. No more can we say that the fortune of the broking industry is dependent on the way the Indian equity markets perform. Going forward, the linear relationship with the performance of BSE Sensex and the profitability and growth of the broking industry may be a wrong way to look at the industry.

As of now, brokers are offering several fee-based advisory products and have adapted their business model in such a way that the equity market performance alone will not impact the broking companies’ bottom-line. That said, the positive performance of the equity markets will definitely push the growth story of the broking industry to new heights. The access to international equity markets also provides good diversification for the brokers to generate revenues not necessarily linked to the Indian equity market’s performance. As the participation in equity markets increases, the performance of the equity markets can be expected to improve. It’s a profitable cycle of sorts.

Since the flat brokerage structure is what is preferred by investors, the only way for the broking companies to make money is by increasing the volumes. It means that new client addition will be the key to the profitability of the broking companies. For whatever reasons, if the momentum of new client addition is broken, the broking industry may struggle to maintain high profitability and there could be some consolidation as has been seen in the past. As of now, looking at the bright prospects of the broking industry, several new brokerage firms are launching broking services with the help of user-friendly apps to lure new customers.

In addition, the poor performance or returns in other comparable asset classes is attracting investors to the equity markets. As long as the interest rate environment remains conducive, the lure of equity will remain. Brokers, apart from the advisory services, are now focusing on fund-based activities such as margin funding and loans against shares. Such activities could lead to incremental but sustainable earning opportunities. In all likelihood it is possible that the good times for the broking industry may last longer than what most people think.

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