5paisa.com, which added 13.5 lakh customers last year, says its derivatives turnover has grown more than 230 per cent in the last one year. “That is where we see a lot of retail interest and because a derivative trading can also happen in a volatile and sideways market, we see that the turnover will sustain and even grow in the coming quarters. So overall I feel that there is a sustained behaviour or interest of retail investors both on the investment and trading sides,” says Prakarsh Gagdani, CEO,
Edited excerpts from an interview:
In FY22, your client base doubled to 2.73 million. After reporting fantastic numbers, how challenging is it to sustain the run rate in the new financial year given how volatile equity markets have become?
Despite adding 13.5 lakh plus customers in a year and our last run rate was almost 1.3-1.4 lakh customers, I think maintaining run rate or growing from here is not a challenge. Even today despite the entire growth that we have seen in the last 2 years with India as a country, doubling the demat account base in just 2 years, we are still at a low penetration of almost 4.5-5 per cent of the population. There is a huge scope to grow. Having said that, we as a prudent practice, also keep a check on the quality of account. Our objective is not just to acquire customers for the sake of it but also to acquire customers who are genuinely interested in trading. So the challenge is not to sustain the run rate rather the run rate can double or maybe grow three times from there. The challenge is to maintain the quality of the customer in a volatile market.
If I look at 5paisa’s average daily turnover charts, you have steadily recorded growth every quarter during the last two years. All this, despite Nifty falling nearly 7 per cent year-to-date. Isn’t it a very healthy sign of sustainable interest in equities?
If you broadly look at markets, the cash market turnover has nearly remained the same or rather has gone down in the last one year. But that is because the trading has moved to derivatives and cash market turnover is broadly for investment. What we are seeing is that the customers are coming into equity markets and are slowly and steadily investing mostly through systematic investments. The systematic investment can be either through mutual funds or through our products like stock SIP or through their own systematic behavior of investing every month some or the other money. So that trend is healthy and that will continue. We are seeing a very good growth on our derivative side. So our derivative turnover has grown more than 230% in the last one year. That is where we see a lot of retail interest and because a derivative trading can also happen in a volatile and sideways market, we see that the turnover will sustain and even grow in the coming quarters. So overall I feel that there is a sustained behaviour or interest of retail investors both on the investment and trading sides. Having said that, the market is cyclical and sometimes a sudden drop in the markets can also lead to investment drying up for some time. We can’t run away from the fact that it can happen in the near future as well.
If you can share some insights on how popular your mobile app is? How much of the turnover comes through the app and where do you see the growth trajectory going?
We are one of the first mobile apps in the country to have 70% plus turnover on a daily basis not just today but from the time we started. But despite scale, today our mobile app has more than 12 million downloads with 4.3 ratings. 80-83% of our turnover even today on a scale where we do 1.2 crore turnover a day, comes from our mobile app. So our mobile app continues to be our single most dominant platform and our preferred platform for users to come and trade.
Do you think retail interest will go down as and when the market enters a bearish phase?
Historically, we have seen that whenever the market goes into a bearish phase, retail investment goes down. On an overall basis we might not see that big a drop. But, as I said, the stock market is cyclical and there is always a limited supply of money with retail investors. If they will not find returns on the stocks they have invested, they will step back and reduce their investments or even stop. So I think it’s a hard reality which is very certain to happen in a bearish phase.
How big is the interest in opening new demat accounts ahead of the LIC IPO? Is that going to drive the next leg of growth for discount broking companies in India?
Everyone was expecting the LIC IPO will bring a huge growth in the demat account but even in the initial phase before March, we don’t see a very very big growth of retail investors coming in. But there is definitely a surge which typically happens 3 to 4 days before a large IPO is coming and that we have seen. But there is no huge difference which we were expecting that demat accounts will get opened for LIC IPO. That is something that we are not seeing.
But once these newbies open a demat account to invest in LIC IPO, how tough do you think it would be for them to remain active?
Equity investment by any means, most of the customers come by the route of IPO. So if a customer makes money on investments, then that’s the only trigger for the customer to remain active. Because if you invest 14-15 thousand rupees in an LIC IPO, you get allotment and you make 15-20% kind of return. That confidence in equities as a product and then you always see that if equities can give you 15% and you compare it with all the other investment opportunities, it is extremely less as compared to equities. So then automatically retail investors will start investing their money with the profits that they have earned on this LIC IPO. I think it’s a very very good way of entering the market and pretty sure that if people make profit they will remain active by investing more money into other stocks.