The average retail trading volumes on NSE

While retail traders is a small community, retail investors are an even smaller tribe. According to a 2017 survey by the Securities and Exchange Board of India, only about 8% of households invest inequities. One of the reasons for that, Bandyopadhyay says, is that we have not had a consistently good market. “Usually, when good IPOs hit the market, you see the creation of more retail investors. But we have not had that kind of stellar IPOs,” says he.

Today, only one million Indians actively invest. Even though equities, as an asset class has yielded returns that are 5-10 percentage points,* higher, according to Deepak Shenoy, CEO of Capitalmind, a financial market analytics company, its risky nature pegged to market conditions make it a choice few prefer.

Enhancement of the rates

This tepid interest has dented even the existing brokerages. Bandyopadhyay says brokerages’ incomes have fallen in the last five years as rates have been slashed, thanks to the likes of Zerodha.

And Zerodha’s stellar growth was from eating market share from the incumbents.

Kamath says it has been growing at 100% year on year since the start and is now among the top 10 brokerages in the country. It accounts for about 3% of the Rs 100,000 crore turnover on the National Stock Exchange (NSE) every day. And it has 300,000 customers, of whom 180,000 are active.

The largest in the business is ICICI Direct, which offers a suite of services from insurance to mutual funds and it has four million customers. The company spokesperson said she cannot disclose the number of active customers or the volume traded by them on NSE.

So in a small pond, Kamath says Zerodha has become the biggest fish. And that moment became very obvious in 2015.

“When we launched the zero brokerage, people said our initiative became viral. Usually viral means millions of views, but it was just 25,000 hits to our website. That is how limited this market is.”

One might say it has only a 3% market share in terms of the turnover traded and there is more headroom to grow. But this is where the catch lies.

In a highly regulated trade like futures and options, no brokerage can account for over 15% of the overall derivatives market.

“The exchange gets very uncomfortable if one brokerage accounts for 15% of all volumes traded because if something goes wrong, one brokerage will have too much liability on its head, says Kamath.

The only way Zerodha can continue to keep growing is if the size of this very unyielding market grows.

Growth pangs

Kamath is 37, a poker enthusiast and he has been trading since he was 17 when some of his Marwari friends introduced him to it. He even lost all his money once. But joined a call center to rake up the capital he would need to earn the money he lost.

Being a seasoned trader, he knew exactly where the system was broken and set up a business to fix it. Even though people around him advised him to go get a real job, he did one better and roped in his younger brother Nikhil Kamath into the business.

Today, the company has 650 people and the brothers know the risks behind trading and believe in taking calculated risks. But this one, they did not see coming.

Its first task now is to get its existing customers to spend more on its platform.

So it launched Coin, a mutual fund platform in 2016. Its customers could directly buy mutual funds without paying any commission.

But experts feel this is not a big value add.

“Unlike stocks, the mutual fund industry is easy for a customer to figure out. If you are knowledgeable, you don’t need Zerodha,” says Shenoy of Capitalmind. One can go to mutual fund websites and buy from them directly, he says.

 

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