The stock market has seen a new batch of participants during the pandemic with the help of digital brokerage players who have provided an opportunity to trade stocks to a new population beyond major cities.
National securities firm Angel Broking registered 4.12 million customers in March 2021, the highest growth ever in gross customer addition. The company’s net profit more than doubled in the fourth quarter, while revenue also saw significant growth. It is one of the largest retail brokerages in India in terms of active client base on the NSE.
In an interview, Angel Broking Managing Director and Chairman Dinesh Thakkar spoke about the drivers of growth, how Covid has changed the brokerage industry, the company’s plans to get into mutual funds of placement and more.
What was the engine of growth last year? What type of new investors have you seen entering the market?
Over the past 3-4 years, we have started to focus more on customer acquisition through the digital mode. We started shutting down our physical networks and investing heavily in the digital space to go 100% digital on the B2C front. Post covid we saw a big rush of millennials who wanted to participate in the stock market as options were available in the market from digital brokers they preferred to invest through their phones especially acted as an opportunity for tier cities 2 and level 3 during the confinement period.
In our last quarter, nearly 90% of our customers were from Tier 2 and Tier 3 cities. This is a new market that has opened up and can be served by digital players with user-friendly platforms .
75% of customers are acquired by digital players in digital brokerage, while we have around 19-20% market share in new customer acquisition. So overall we see a place to have a good market share in the future.
How has covid changed the brokerage industry?
Covid has accelerated this growth of investors coming to market through the digital platform. What started as a wave during covid, has become a fundamental trend for Indians beyond tier 1 cities who now have the opportunity to participate in the market. It has also benefited in terms of awareness in all geographies. The post-lockdown period can also create a surplus in the form of savings for people who would be interested in investing in the stock markets.
The past 10 years have been tough for the brokerage industry as there was a low turnout in terms of people entering the market. CDSL growth during this period was in the single digits. Now, it looks like we’ve entered a phase where we can see a secular growth of investors entering the market.
Investors show confidence because they invest in traditional risk-free options, like bank FDs, hardly offer high rates compared to stocks that offer enough risk premium for people to consider investing.
The newer population is separating from the existing population of metros and tier 1. This is a huge inclusion for the brokerage industry through which the industry can easily grow at this rate for the next 8-10 years.
What are the company’s future plans? You were recently appointed to the board to get into the mutual fund industry, how do you plan to approach this industry?
We have experienced strong growth in our core business, which is equity brokerage. We see a great opportunity to offer financial planning and solutions to our clients from mutual funds, insurance products, mortgage products on our platform. The goal is to move from a single service provider to a platform company where an acquired customer can have access to all products offered.
We would like to enter the AMC sector because we see a large scope of passive floating funds like ETFs, smart beta products where we don’t need an active fund manager, which I think will disrupt this industry. There is a huge cost on active fund management and the rewards are not commensurate. We can create a lot of disruptive products in AMC that will be more of a passive approach.
We have obtained board approval to launch an AMC, and we are now in the process of seeking approval from regulators. We have seen it take almost 8-10 months for an approval and 8-10 months to set up the business. Thus, AMC will take approximately 2 years to become operational subject to regulatory approvals.
How do you see the market developing after the impact of the second wave?
The market will continue to look to the future. The current impact that we are going to see in the first half will already be refreshed in about a month with the corporate earnings announcement of the first quarter results which may not be as significant compared to the fourth quarter. This is when I see the market bottoming out which is a good opportunity for investors to buy into the dips with the next 3 years in mind which looks to be a lot more bullish than what we have seen. When the market looks to the second half and beyond, it will take a bullish stance.
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