Discount brokerages wrest greater market share during lockdown

The structure of the equity market brokerage industry is undergoing a sea change. Discount brokerages, the one that charge flat commission even on high-value trades, have strengthened their market share. As per industry estimates, the market share of the top five discount brokers is now about 18-20 per cent in the overall equity and commodity markets broking commission pool. The commission pool in pure play stocks and commodities could be between ₹3,000 and ₹5,000 crore, industry players say.

The top five discount brokers include Zerodha, Ustox, Angel, 5paise and Samco Securities.

“We currently have a market share of 12 per cent in the discount brokerage space,” said Nikhil Kamath, Co-Founder and CIO, Zerodha and True Beacon.

Also read: Sharekhan enters discount broking

In Kamath’s view, it is mainly the investors between the age of 25 to 35, who are inclined towards discount brokerage platforms due to technology. The discount brokers have been in existence for nearly a decade now. They do not charge any brokerage on cash market buying and selling. Their flat discount ranges from ₹20 to ₹50 even on high-value derivative transactions. However, their charges are somewhat similar to the traditional and bank-backed brokers when it comes to extending leverage trading facilities to clients.

According to a recent research report by ICICI Securities, Zerodha had a 33 per cent market share in terms of active clients on the National Stock Exchange (NSE). Angel had 11.7 per cent and Upstox 10.8 per cent. Their market shares have risen substantially since the Covid-19 lockdown started in March. Angel Broking, Upstox and 5Paise also offered cash rewards for bringing other customers. Active clients are those who regularly trade.

“Discount brokers have disrupted the retail broking industry but their revenue model is yet to be fully established. Cash delivery segment, a cash cow for most retail brokers (brokerage 10x of intraday and F&O), is witnessing ‘Zero’ delivery charges, thus challenging incumbent revenues. Industry trading volumes moving in favour of ‘Options’, where per lot pricing has seen a sharp cut in the last couple of years and per lot pricing is gradually becoming irrelevant (per order pricing followed by discount brokers). Increasing contribution of the direct and annual subscription model in cross-sell products such as MFs shall disrupt the distribution incomes of brokers. These changes are now not fully adapted by incumbents; hence, we believe the revenue model is not fully established yet,” a report from ICICI Securities said.

Also read: Not a single employee of Zerodha works with a revenue target: CEO

The report also says that discount brokers are the biggest beneficiaries of the recent change in SEBI norms.

Still, bank-baked brokers like ICICI Securities, HDFC, Axis Direct and SBICaps, among others, have a lion’s share of brokerage pools. Rise in mobile trading is one the key reasons for the jump in market share of discount brokers, analysts say.

Also, market regulator SEBI’s recent rule on upfront collection of margin in the cash market and high-value derivative margin that will be applicable from December are other key catalysts aiding the growth of discount brokers, analysts say.

The traditional brokers allowed clients a leverage of up to seven days in the non-derivative segment without any cash margin. SEBI put a lid on that from September. This apart, co-location and smart algorithms used by discount brokers that can execute trades faster are also attracting clients.

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