On turning 18, Abhinav Shetty wanted to start investing in the stock market. The youngster had been saving his birthday gift money of the past few years for this.
His father encouraged him and advised him to make a list of the sectors and companies that interested him. He then helped the teenager open a dematerialised (demat) account through an online trading platform and buy the shares of a company he fancied.
The stock market is seeing a surge in the number of such individual or retail investors in recent times and this, in turn, has propelled the growth of online trading platforms with their promise of convenience and low brokerage fee compared to offline brokers. Zerodha, Upstox, Angel One, Groww, FYERS, Paytm Money, and 5paisa are some of the prominent online trading platforms that are rapidly growing their user base even as conventional offline brokers are struggling to tap this growing demographic of retail investors.
The number of demat accounts hit a 13-month high in June at 120.5 million, with 2.36 million new accounts opened in June alone, according to data from the Central Depository Service and National Securities Depository.
Venture capitalists have been quick to smell the success of the online trading platforms and are voting with their funds.
Pegging the annual profit pool of the stock brokerage market at $2 billion, a VC, who declined to be identified, says, “People across the country are becoming more and more active in terms of managing their wealth by themselves — without the help of intermediaries. This change in user behaviour has allowed tech-first companies to innovate for the customer, and that naturally brings VC interest.”
Echoing this, Anurag Ramdasan, Partner, 3one4 Capital, says, “Trading strategies have evolved and the retail investor entering the market is looking for a modern, user-friendly trading solution. This has led to the emergence and growth of newer apps that provide more complex strategies, features and performance.”
Follow the money
In 2022, online trading start-ups raised $135 million in over eight rounds, according to data from Venture Intelligence. The previous year, online discount brokerage start-ups raised $359 million in four rounds.
After raising $86 million in March 2022, online brokerage start-up IndMoney was valued at $650 million. Two months earlier, trading platform Dhan, founded in 2021 by a former executive of fintech Paytm, had raised $22 million from VC firms Beenext and Mirae. The year also saw trading platform Groww raise an undisclosed sum from Microsoft CEO Satya Nadella in his personal capacity, according to Tracxn, a start-up data platform.
Broking start-ups offer traders and investors convenient access to the financial markets at a low cost. They charge a fee or commission for executing trades, providing research and analysis, offering margin trading, and facilitating other financial transactions.
Some of them also generate revenue from interest income, payment for order flow, and sale of premium subscriptions or add-ons for their research offerings. Discount broker FYERS says it offers retail investors and traders solutions that are not easily available from traditional banks and brokers.
“Our start-up approach enables us to be more adaptable to market dynamics and customer preferences. We embrace innovation and flexibility, fostering an environment that encourages creative solutions. Banks, due to their regulatory framework and established practices, often face challenges in swift adaptation,” says Tejas Khoday, co-founder and CEO of FYERS.
The company charges a flat ₹20 or 0.03 per cent brokerage per order across all segments, except in the case of equity delivery, where it charges zero brokerage. 5paisa Capital charges even less — brokerage of ₹10 per order along with services such as portfolio analytics, trading calls, advisory and research. It says its primary focus is assisting futures and options (F&O) traders in quick execution of trades.
“We have also launched a dedicated platform, FNO 360, for derivative traders. The customer base has grown multi-fold over the past few quarters and there has been a significant uptick in the usage of the new option trading features. This seems aligned with the month-on-month increase in new demat accounts, increasing turnovers in the F&O segment and higher awareness of option trading,” says Yash Upadhyay, Chief Strategy Officer, 5paisa.com
Active operators with their high volumes of transactions generate meaty revenues for the platforms facilitating them. “The number of part-time traders is on the rise. They predominantly use mobile platforms, so there is a window to build a better mobile-only product,” says the founder of an online trading platform, who declined to be identified.
Zerodha leads the pack with 6.2 million active traders in June 2023 — that is, a market share of 20.2 per cent. During the same period last year, it had seen a 52.9 per cent spike in number of users to 6.6 million, from 4.3 million a year earlier, according to a report by Motilal Oswal
The number of active traders on the Angel One platform stood at 4.4 million in June 2023, giving it a market share of 12.7 per cent. A year ago, its user base had doubled to 4 million from 2 million. The unicorn broking start-up Upstox has a market share of 9.4 per cent, with a user base of 3.2 million.
Currently the top five discount brokers collectively hold 61.3 per cent of the market share, up from 58 per cent in June 2022. Not to be left behind, legacy brokerage houses, too, have tried to launch mobile offerings, but largely with limited success.
Groww, which started as an app for mutual funds, has notched up an annual revenue run rate of $200-250 million. Zerodha’s year-on-year profit is projected to jump by 12 per cent to ₹2,500 crore, according to a report by HDFC Securities. Upstox has registered over 40 per cent rise in operating revenue in FY23.
Investors appear more than happy to bankroll such numbers, even as they hope more and more Indians will tune in to the stock market show.