Over the last 18 months, as the COVID-19 pandemic forced people indoors, millions took to investing in stocks. Discount brokers like Zerodha, Upstox and Groww managed to attract many of these new breed of investors, especially the millennials, on the back of low costs, and an online and tech first approach. They have already doubled their revenue market share to 27 per cent at the end of financial year ending March 2021, compared with 13 per cent in FY19, and it is expected to grow further to 37 per cent by 2024-25, according to a report by HDFC Securities.
Retail broking revenues of discount brokers have already risen over three-fold to an estimated Rs 3,100 crore in FY2021 from Rs 1,000 crore in FY19. This is further expected to jump 2.8 times to Rs 8,500 crore by FY25, according to the broker.
“Given the rising significance of millennials (400 million, 34 per cent of India’s adult population and nearly 50 per cent of working population), it is crucial for capital market firms to understand their investment habits. We estimate that millennials currently contribute 14 per cent of the total equity wallet. Discount brokers have a dominant 61 per cent share of this wallet and have established a firm Right-To-Win (RTW) within this segment of consumers,” analysts Krishnan A.S.V. and Sahej Mittal said.
Several things have been key in driving the growth in equity investors. Aadhaar-based eKYC has made it extremely easy to open a demat account. Separately, penetration of smartphones and mobile internet has also seen a strong growth in recent years. There have been several big ticket companies going public over the last two years, which coupled with record low interest rates globally has also attracted people to start investing.
The number of demat accounts rose from 23 million in FY14 to 41 million in FY20. That figure has further jumped to 65 million with, 24 million new accounts opened between Aprill 2020 and July 2021.
The total demat accounts are expected to double to 134 million by FY25 as proportion of working millennials rises, per capita GDP and disposable income improves and financial awareness grows.
“In this cyclical uptick witnessed in FY21 and FY22 to date, discount brokers have added 75 per cent of incremental customers, demonstrating the preferences of new-to-market clients,” said the HDFC Securities analysts.
Discount brokers usually charge a low fee; its roughly Rs 10-20 per order or 0.01 per cent of trade value for intra-day trades, while there is usually no charge for delivery trades.
There are 943 registered brokers on the NSE. However, only 163 brokers have active clients and even among them, the top 10 brokers account for 75 per cent of the active clients.
Of the top five brokers in India, four now are discount brokers. The market share of discount brokers in terms of accounts is expected to jump to 58 per cent by FY25 from 14.6 per cent in FY19.
“Revenue market share analysis suggests that discount brokers have gained market share at the cost of other standalone brokers. We expect this trend to continue on the back of growing customer preferences for digital brokers with better platforms, regulatory steps to reduce excess leverage (earlier offered by traditional brokers), and pricing pressure on full-service brokers,” said Krishnan and Mittal.