Brokerages in India are seeing a record number of new accounts and a sharp uptick in trading activity thanks to the raft of cash incentives, including units of exchange traded funds, gift cards, vouchers and waiver of charges, they are offering to young, first- time enthusiasts to coax them into investing in the stock markets.
At least 25 lakh investor accounts were opened in the April-June quarter, according to several people familiar with the matter. Nearly all the brokers are offering free demat account opening.
Most of the brokers are gifting free units of exchange traded funds (ETFs) once accounts are opened along with a free trading account, they said, asking not to be named. Some brokers are even giving refunds of as much as Rs 4,000 over one year to buy the loyalty of newly-acquired clients.
Take the case of Upstox. The company has offered a cash offer of Rs 400 for referrals and Rs 100 as ETF units to a new account holder.
Sharekhan is offering a free trading—meaning if you wanted to buy or sell, you don’t have to pay for each transaction—and demat account. The company has waived off the Rs 1,150 fee it used to charge for opening a dmat account. It is also offering trading plans that adjusts the brokerage against by just paying the AMC (annual maintenance charges).
Indiabulls has offered free unlimited trading for the first month or unlimited trading at Rs 1,000 a month or trading at flat Rs 15 per executed order.
These actions are fuelling a boom in retail trading as people bored at home amid the lockdown and hoping to make a quick buck flock to the stock markets. No-fee trading and other incentives make investing look easy and alluring.
As many as 70 percent of the customers of 5paisa, a brokerage, are from Tier 2-3 cities and an equal proportion of the company’s customers are millennials.
“There is a huge demand from the first-time investors and the discount brokers are just providing a simple, real-time, online platform amid the lockdown,” said Prakarsh Gagdani, CEO of 5paisa.com.
Simple or not, the top 12 brokers in India have added 13 lakh investor accounts in the last quarter, reveal data from the National Securities Depository Ltd. Zerodha Broking added 5,26,917 accounts, a 37 percent increase from a year ago. Angel Broking added 33 percent accounts to 1,90,397 accounts. 5paisa capital added 30 percent to 1,31,742 accounts while 1,58,449 new accounts were opened with RKSV Securities India Private Ltd (the company which owns Upstox), a 26 percent growth (see The Retail Boom In Indian Stock Market).
Zerodha, India’s biggest brokerage, is one of the biggest beneficiaries of this boom, but his company has offered a referral incentive but nothing else, according to Nithin Kamath, founder and CEO of Zerodha. “Most others do cash back vouchers, free stock, etc. and all of them have something or other.’’
“At Zerodha, investors have largely invested into large-caps part of the Nifty 50,” he told Moneycontrol in a separate interview.
The big retail uptick in Indian stock markets mirrors trends in foreign markets, especially in the US, where a new crop of traders have emerged during the coronavirus pandemic. There too companies such as Robinhood, Charles Schwab, E-Trade and others have disrupted the traditional brokerage system by offering commission-free trading and even free shares on occasion.
Slew of Incentives
Indian brokerages seem to have borrowed a page from their playbook. Most brokers in India are offering some incentives, said Deven Choksey, managing director at KR Choksey Shares & Securities.
"Offering a free demat account is very common while incentives like Moneycontrol Pro and newspaper subscriptions are also becoming common these days," he said.
5paisa.com is a shining example of this lot of brokers. The company is offering a free account opening with free Trading, demat and mutual fund account along with a free first year demat AMC and trading at flat Rs 20 per order.
Motilal Oswal is offering a zero AMC for Demat Account for lifetime with its Rs 25,000 margin or Rs 3,000 prepaid value pack. The company is also offering discount vouchers worth Rs 3,000, free access to research and free use of the trading platform.
Trading volumes jump
These efforts are having the desired effect.
There has been a 25 percent quarter-on-quarter growth in industry cash trading volumes in the fourth quarter along with a rebound in equity markets to support distribution, Motilal Oswal Securities said in a report on July 12. The operational expense has declined sequentially due to the COVID lockdown.
The Bombay Stock Exchange had a turnover of Rs 2 trillion rupees of in April-June quarter, a 40 percent surge from a year ago.
The average daily trading cash volumes has risen to around Rs 32,000 crore this year from Rs 20,000 crore in FY19, according to B Gopkumar, managing director and CEO of Axis Securities. The percentage of delivery volumes has also risen to around 30 percent this year from an average 24 percent last year, he said.
Sustenance of trading volumes
Brokerages face the challenge of retaining traders in the longer term, according to Gopkumar. Giving away ETF units to new account holders may lead to a surge of new accounts but is not a true reflection of the activity in the markets, he said.
But there are signs that the retail boom is not completely a fad. The average age of people opening new accounts have fallen to 30 from around 36 earlier, Gopakumar said, adding that the new investors are buying much of large caps and are not falling for the lure of penny stocks compared to earlier bull runs.[Santanu Chakraborty is a journalist who has been writing on the Indian equity and debt markets for the past 12 years.]