You have a fee-only advisory service for high net-worth individuals (HNIs). What kind of traction are you seeing in it?
We have set up an investment advisory platform for our ultra HNI clients and are focusing on direct mutual funds. We are also strengthening advisory services to offer insights on all asset classes. Most HNI clients prefer a personal plan and are willing to pay advisory fees. We have seen a good response, given that this is just a five months old vertical. We are in the process of on-boarding customers and are positive that we will see more interest as we move towards a new normal.
Is there a shift from mutual funds to direct stocks investment? If so, then why is this happening?
It is a little early to comment if there is a trend. But we have observed that there is a fair amount of surge in the number of customers in direct equities. With lockdown across economies, there has been a rise in equity participation driven by online investments. People are making an effort to plan their finances. There are ample opportunities in the market as well, making it all the more attractive for investors to add quality stocks.
We also noticed a shift in investment behaviour. While in January, across segments, a broad bifurcation of “buy” and “sell” orders was 51% and 49%, respectively, the focus increased on buying during the lockdown. This is the right time for retail investors to build portfolios. Around 40% of our additional customers have been trading regularly. It is essential for us that our customers take deliveries and strengthen portfolios through our platforms.
What processes have you set up so that customers do not suffer from the type of issues that Karvy Broking’s customers suffered?
We are a well-capitalized company. We use fixed deposit receipts and bank guarantees towards margin deposit with exchanges, and not pledged shares. The securities of our clients are kept in a collateral demat account. No pledge is created on these securities and no funding is availed of using these securities.
At the end of each quarter, all collateral securities, where limits are not utilized by the client, are released back to their demat accounts. Also, when a client buys shares through us, the shares received from the exchange on T+2 day are transferred to the client’s demat account on the same day of receipt. Safety of the assets is our primary concern and we make all efforts to ensure that their transactions with us are secure.
How do you stack up against the low costs of discount brokerages?
Most of our client acquisition and engagement is through our bank. A majority of our clients are cash market customers. On the other hand, for discount brokers, volumes are driven by F&O (futures and options) clients.
The pandemic has made investors yearn for a safety net to tide over uncertainties. We offer our customers expert advisory along with a robust investment platform. We help them understand the risk-reward while equipping them with the know-how to invest wisely. Also, we have a competitive brokerage in the F&O segment, which enables us to acquire customers in this segment too.
You have a tie-up with Saxo Bank for international investing. Can you elaborate on that?
We have the facility to use the liberalized remittance scheme (LRS) to invest in markets globally. A big gap in this segment is the ability to offer investment advisory. Even the process of setting up an LRS account is a little tedious. To address these gaps, apart from Saxo, we are planning to partner with a new platform, which can provide investment advisory and simplify the process of on-boarding customers and remittances by international equity. We are tying up with an investment advisory firm and a broker to give our customers a holistic approach in terms of advisory.
We also intend to make international investments simpler and research-based through our specialized products and services. As an Indian brokerage house, our ability to cover international equities is limited and, hence, a tie-up with a strong investment advisory firm is crucial. We are working towards this new platform and will be launching it soon in the market.
How are volumes in the F&O space compared with the cash delivery, especially post the lockdown?
If you compare the two segments, the cash market has witnessed massive traction in recent times. Last year, the cash market volume for the industry was around ₹20,000 crore per day. This year, it is already ₹32,000-33,000 crore and that is just the retail portion. There were instances when this volume surged to even ₹40,000-50,000 crore. If we go by these figures, they clearly show that customers are actively participating in the cash market.
Another trend observed in the cash market is that cash delivery is looking interesting. Most of our customers are building their portfolios, and hence, our delivery volumes look good. The delivery volumes will define profitability for brokerage firms. We have also observed that our customers are biased towards “buy” calls, and we expect this trend to continue going forward. On the other hand, we have not observed much change in F&O volumes, which continue to be around ₹7 trillion per day. The recent development in regulations on the requirement of compulsory upfront margin trade has further reduced the F&O volumes.