Technology makes it easier for stock and mutual fund investors

Stock advisers are leveraging AI and Big Data for recommendations

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THOUGH INDIANS ARE traditionally big savers, investing in stocks had not been a favoured option for them owing to the perceived risk and the cumbersome process of dealing with stockbrokers and maintaining documents. But the ease of investing through smartphone apps is attracting a new generation to the stock markets.

The online stock trading platform Upstox, for instance, is the second largest stock broking firm in India in terms of active clients and market share. Founded in 2009, the company hit the 10-lakh-customers mark in June 2020. It has grown 10 times since then and touched one crore customers in May 2022.

The number of active dematerialised accounts (a demat account holds financial securities in a digital form and it is essential for trading shares) in India has more than doubled, from around 4.1 crore in March 2020 to 8.97 crore in March 2022. The total assets under management of the mutual fund industry have almost doubled in the past five years, from Rs19.04 lakh crore in May 2017 to Rs37.22 lakh crore in May 2022.

Integration of technology was one “very obvious factor” driving the retail market penetration, said Narayan Gangadhar, CEO of the stock broking firm Angel One. “It has become extremely convenient to participate in the stock market with mobile apps and web-based solutions offered by fintech platforms. Gen Z and millennials, who want everything at the touch of a button, are leveraging the availability of stock market solutions on smartphones,” he said. Angel One doubled its client base since March 2021 and hit one crore customers in May 2022.

Most of the online-only stock trading platforms do not offer advice or recommendations. “These are simply platforms for investors to come and transact in stocks or mutual funds,” said Vidya Bala, founding partner and head of research and product at Prime Investor, a research solution platform for retail investors. “Players like Prime Investor and Value Research give investors recommendations and tools to do research.”

In capital markets, there are distributors who sell products like mutual funds, there are registered investment advisers who give advise for a fee, and there are research analysts who provide product-related recommendations. And they are all making use of technology. MarketsMojo, for instance, is a stock and portfolio research advisory firm that uses big data and artificial intelligence to analyse markets and stocks for more detailed and unbiased research. It covers 21 global markets and has seen 500 per cent compounded annual growth over the past three years. “We have witnessed a flood of new investors subscribing to model portfolio strategies,” said Mohit Batra, founder and CEO of MarketsMojo. “Currently, we run close to $800 million of portfolios, approximately Rs6,000 crore worth of portfolio subscriptions. Most of these subscriptions took place over the past two years.”

Batra said there were two sets of service providers in the market. “Discount broking runs on a savings philosophy that investors must trade as much as possible with the lowest possible charges. The other service providers are tool-driven and concerned about investors making money,” he said.

Despite the strong growth, the market is still under-penetrated. Batra expects a big surge in the years to come as people are “eager to know how to make money before knowing where to make it or the platform to adopt”.

These platforms use AI and deep learning to do customer profiling, researching markets and then creating portfolios for customers. Apart from recommending stocks, there is also an analytics-based risk management system, which tracks individual stocks held by a client; it prompts the client when to sell. “Using AI helps combine temporal signals with data to provide customised recommendations,” said Gangadhar.

JarvisInvest, an AI-based equity portfolio advisory platform, went live in 2018, but a full-fledged mobile application was launched only in September 2019. It is not a broker, but it works with 20 top brokers.

“How do you take a portfolio management service or AIF (Alternative Investment Fund) category to a retail investor and provide hyper personalised experience to each client? We tried to fill in this gap,” said Sumit Chanda, CEO of JarvisInvest.

MarketsMojo, on the other hand, wants to become an unlimited zero broking provider while charging limited advisory fees.

The innovative products by fintechs have got the attention of full-fledged broking firms. “We are constantly trying to provide our users the best-in-class products and services,” said Gangadhar. “So we have partnered with fintech platforms that can enhance the overall investment experience for our clients.” Angel and several other brokers have partnered with Smallcase, a platform whose integration offers clients curated basket of stocks or exchange traded funds (ETFs). Similarly, the partnership with the fintech Vested Finance helps its customers buy US-listed stocks and ETFs.

Tech-savvy youngsters with high risk appetite are the main users of these investment and advisory platforms. Batra said about 80 per cent of investors MarketsMojo acquired in the past few years were in the 24 to 32 age group. Many of these investors entered the market in 2020 and benefited from a rally in stocks that began in April 2020 and lasted till the end of 2021. But, markets have been extremely volatile after that, amid rising inflation and interest rates. Since their peak in October 2021, benchmark equity indices are down more than 13 per cent. How many of the new investors have the perseverance to ride this volatility and stay invested through a period of low or negative returns is yet to be seen. At least some of them may make an informed choice and that is what these investment advisory platforms are pinning their hopes on.

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