‘This time it is different’ ranks among the most dangerous phrases in the world of investing. And having been in the broking industry for over three decades, Angel One founder Dinesh Thakkar should know it better than most people. And yet, he chooses the very words when asked if the broking industry is headed for a downturn in the medium term.
“I feel today’s situation is different from the past for two reasons: regulations and access to information are much better today, and there have been major changes in terms of demographics and socioeconomics,” he said in an interview to Moneycontrol. Thakkar’s confidence stems from the fact that majority of the new entrants to the stock market are now coming from beyond tier-2 cities, where people are just becoming financially aware.
Hearing Thakkar speak feels like a throwback to the heady days of 2007-08 when broking firms were on an expansion spree, convinced that their customer base would continue to grow at a rapid rate for a long time. That optimism turned out to be ill-founded, and over the next few years most brokerages had to scale back branches and lay off staff. Thakkar’s theory is that previously most new entrants to the market were from tier-1 and tier-2 cities and when they retreated in the aftermath of a market crash, new investors were slow to come.
“I feel the current phase of slowdown (in new client additions) would be short lived. In fact, digital players like us are not seeing any slowdown. We are getting 3.5-4 lakh new accounts every month; 90 percent of them are from tier-2 cities and beyond,” Thakkar said.
But the market does not appear to be convinced about the industry in general, judging by the performance of broking stocks, including Angel One, over the last one year. Bhav bhagwan che is another axiom of the stock market, meaning that the stock price reflects the truth of the situation. Thakkar comes across as blasphemous, or even cocky when he says that the market is wrong in being pessimistic about the broking business. “The market is being illogical, it is going by perception and not reality,” he says, adding that the market had called broking stocks incorrectly in 2008 when it overvalued them.
A big worry for the market is some of the recent change in regulations will over time squeeze the profitability of broking firms.
Thakkar may be seen as breaking ranks with the industry by his effusive praise for the regulator’s recent steps. But his views don’t come across as a stance merely to sound politically correct. Most brokers praise SEBI in public, but in private voice displeasure at what they see as micro management by the regulator.
“Whatever is not necessary for brokers should not be with brokers,” says Thakkar. “There is technology to segregate assets, and it should be used. Brokers should focus on quality on services, not on custody of assets,” he says, adding that tighter regulations will reduce scope for bad behaviour by brokers, improve clients trust in them, and this would benefit the industry in the long run.
Thakkar entered the stock market as a novice in 1988 while in his mid-20s, hoping to make some quick money that could be used for buying new technology in textiles, the family business. Thakkar borrowed money from his friends, not from family. “Borrowing money from family would have meant emotional complications, and I did not want that,” said Thakkar.
He initially made some profits through beginner’s luck, then lost all of it plus about half of his capital when the market tanked. Rather than quitting, Thakkar stayed on, this time as a sub-broker’s sub-broker. He was convinced there was money to be made by giving better services to retail clients who were treated shoddily by their brokers. When he had managed to build a sizeable client base, the 1992 securities scam happened, and many of his clients defaulted. His friends to whom he still owed money, were supportive, and Thakkar started afresh. He started opening branches in the suburbs in the late 90s, but that too had to be scaled back in the aftermath of the dot com crash in 2000-01.
An attempt to give the latest backend solutions (at that time) to clients so that they would not have to come to the branch office to collect contract notes, also backfired when the software vendor closed shop abruptly. To Thakkar’s misfortune, he had already invested a sizeable sum in buying the hardware for the set up. By now used to periodic setbacks, Thakkar started expanding his branches beyond Mumbai. He sourced data on area pin codes with a large number of investors, from NSDL and CDSL, chose branch locations carefully, with specific targets for staff in term of clients, revenues and costs. He empowered branch heads to write out cheques up to a certain limit, and by opening accounts with as many local bank branches possible, ensured that clients received their funds payout on time. All these measures helped Angel build a 165-odd branch network by 2011-12, outclassing pan-India rivals who had been in the broking business for longer.
He tied up with a couple of hundred third party distributors of financial products to cross sell products to clients, but abandoned that model when he realised that it was hard to retain their (distributors’) loyalty. Thakkar had begun work on a mobile app way back in 2010, but progress was slow. Sometime in 2016 he realised that the offline operations had reached its limit of profitability, and it was time to garner incremental business through digital expansion. He tried selling this idea to his branch staff, but they were resistant to change since the physical model was working well. Over the next few years, Thakkar began to gradually close down physical branches, convinced that they had outlived their utility in a world that was fast rapidly turning digital.
People who know him say Thakkar is quick to adopt and adapt, if he has the slightest hunch that the change will pay off. In 2006-07, while in mid-40s, Thakkar was laid low with a slipped disc. On the advice of his son who had done a course in fitness, Thakkar started weight training. Then in his late 50s when he was told that he needed to have more protein in his diet, Thakkar, till then a vegetarian, included meat in his diet.
The willingness to change is one of the factors that has helped Angel One rise to the top long after rivals and even well-wishers had written off Dinesh Thakkar as an also-ran.
For a man who is quick to embrace change, Thakkar can be unwavering if he is believes in something strongly. For instance, between 2005 and 2008 when many of his IPO-bound peers got into institutional broking and ancillary business like NBFC because of the better valuations it fetched, Thakkar stayed the course on retail broking, convinced that the bet would pay off handsomely one day. That day would come more than a decade later, but Thakkar patiently waited it out, going public in November 2020, and then having the satisfaction of watching his shares risen nearly six-fold over the next 18 months as retail investors came stampeding to the stock market post pandemic.
“Over the last couple years, many people come up to me and congratulate me for having done something great, but I see as the culmination of a series of steps we have been taking over the last three decades,” Thakkar says. “People say I have adapted to technology well, but to me, the more challenging and satisfying phase was back in 2000 when we were trying to developed a robust back end system for our clients so that they could access their contract notes and account ledgers electronically. Today access to technology is easy, but back then even little conveniences were a struggle.”
The retail euphoria has long faded and stock returns have been muted over the last year for most investors, unless they have been lucky to be in the right stocks. Much of the trades is now happening in options contracts, while cash market volumes have shrunk considerably from the peak of 2022. A section of the market feels the abnormally high levels of activity in options contracts poses a systemic risk, besides challenging the essence of a stock market—to connect companies seeking capital with savers looking for returns. But Thakkar is unfazed. “Most of the new entrants are youngsters in their early 20s. They do not have much capital, they are in the process of creating it,” he says, adding, “I am sure that at some point they will invest in equities because they a) they would have figured out equity investing by then, and b) they will realise that wealth can be created only through long term investing.”
From starting as a sub-broker’s sub-broker to building a strong network of sub-brokers, to becoming the number one physical broker, and from there to becoming the number two online broker, Angel One is now gearing for its avatar with the recent launch of its Super App.
“In the next five years, I am looking at Angel as a fintech company, one which started as a stock broker and will grow into an app for multiple money management and financial services.,” he says, “..the idea is to give our customers the full range of solutions for their financial requirements in a single app.”
In doing that, Angel will be squaring up against pure play digital brokers who not are better at the technology game, but also have deep pockets. Thakkar does not think he is at a disadvantage.
“Nothing really changes whether you are a digital broker or a physical broker.,” he says. “What matters is how well you are able to understand your clients requirements and then provide the right solutions.”
To read the full interview, click here:
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