In Conversation with, Prakarsh Gagdani CEO, 5paisa.com

Prakarsh Gagdani CEO, 5paisa.com

What is your outlook on the Indian discount brokerage industry?

Can you highlight the changing behaviour of retail investors post-pandemic in 2022? Since the beginning of the pandemic, there has been a dramatic shift in the outlook for the Indian capital market. The number of demat accounts in the country has more than doubled in the past two and a half years. In August 2022, the number of demat accounts in the country surpassed 100 million for the first time. In August, almost 2.2 million new accounts were opened, the highest number in four months, bringing the total to 100.5 million. Thus, the stock market or capital market is now a household term that is no longer limited to India’s metropolitan areas but has penetrated into the deep hinterlands of India. The pandemic was an influx point for the brokerage industry. We have experienced more growth in the last two years than we did in the previous two decades. Having said that, there are changes that are happening in the brokerage industry: a) the euphoria surrounding the growth of demat accounts will eventually reach a plateau, b) as a result of the extensive penetration of digital brokers, the industry will undergo consolidation, c) capital to run a business or operational expenditures. Overall, I feel that the discount broking industry will consolidate but still grow

What is your segment-wise revenue mix and how do you expect it to evolve over the next three years?

Our derivatives segment contributes 60–65 per cent while the cash segment contributes 35–40 per cent. However, the primary reason for the cash segment’s lower share is the current market situation. Going forward, as the markets consolidate and begin their upward trajectory, we anticipate a rise in cash segment revenue. We anticipate that the revenue mix over the next two to three years will roughly be 60 per cent in the derivatives market and 40 per cent in the cash segment.

In FY22, 5 paisa saw 102 per cent YoY growth in customers. How long do you expect this high-growth momentum to sustain? Could the industry take a breather before the next leg of growth gets under way? As previously said, the frenzy around demat accounts is waning and after hitting a high of around 3.5 million in October 2021 the industry currently stands in the range of 1 million to 1.5 million new demat accounts a month. As an organisation, our focus will not be on the number of customers we acquire but rather on getting quality customers. We are looking for people who are genuinely interested in investing in the stock market, as opposed to merely acquiring customers for the sake of it.

Can you shed some light on your efforts to augment investment in your mobile platform, artificial intelligence, machine learning capabilities and other new technologies?

We are a mobile-first company and even today 75–80 per cent of our trades happen on our mobile app. Even after 12 million downloads, a 4.3 rating, and being recognised as one of the industry’s best discount brokers, we continue to invest in enhancing the capabilities of our mobile trading platform. We are always trying to improve, expand and perfect our technology, and we continue to invest adequately in money, technology and people into making our mobile platform better.

Coming to artificial intelligence (AI) and machine learning (ML), we feel these are niche fields. We think that data analytics and machine learning will be the next step in making investment advice and solutions more specific and tailored to each person. And although we have begun investing in AI and ML, it is still in its nascent stage, and we will monitor how it evolves over time.

With volatile market sentiments, how have you been managing your customer acquisition cost (CAC)?

How do you see it playing out in the upcoming quarters? This is a very good question. From the very start, we have worked towards reducing our per unit customer acquisition costs. This has been the case for several quarters. I am delighted to share that in the most recent quarter, Q2, we reached our lowest acquisition cost of approximately 574. This is on the back of focusing on organic and referral growth and decreasing reliance on high-cost and low-value paid channels. Our primary objective has always been to expand our brand organically through positive word-ofmouth from our existing clients. A good customer would always suggest us to their friends and relatives, despite market volatility. This is why our CAC is decreasing.

How do you plan to leverage the burgeoning ecosystem by broadening your product portfolio?

Also, what is your strategy for penetrating the untapped markets specifically in Tier II, Tier III and beyond cities? Even today, over 70-75 per cent of the customers of 5 paisa are from Tier II and III cities and beyond. We began by introducing them to capital markets and giving them a taste of equity investments – both through direct equity such as stocks and indirect equity such as mutual funds. The same customer would subsequently need more financial products and that is going to be our strategy in terms of penetrating deeper into getting more wallet share of these customers through products like insurance, loans, bonds, FDs, PPF, etc.

Currently, what are your top three strategic priorities?

I would say they are: n To grow our customer base with emphasis on quality rather than quantity. n Increase in RPU (revenue per customer) by up-sell and cross-sell. n Improve our trading platform by adding value in terms of constantly improving user experience, products offerings, features and building a trading community and other opportunities for our customers.