Extending market hours could be a UPI moment: Tejas Khoday of FYERS

It is not demoralising at all. This has been the norm for ages. Trading is a zero-sum game, not accounting for fees. The apprehensions and media hype surrounding now is primarily because there are so many participants, compared to 2008. So, there’s a feeling that “this time is different.”

In fact, when you look at the startup ecosystem, roughly only 10 percent of them are profitable. Same way, very few traders tend to make money and that’s just the nature of competitive pursuits.

How does the new regulatory development of integrating UPI into a broker's software impact your brokerage, and what kind of dent are you expecting?

While we will lose a bit of revenue, the impact on us won't be significant since we already have the running account settlement mechanism in place. This new rule will prevent brokerages from earning any return on the idle money in broker accounts as the trade payments will now be made on a real-time basis.

It won't jeopardise the survival of large brokers but may make life harder for smaller brokers, particularly those with zero-brokerage models. However, I do think it's time for brokerage fees to go up since the cost of technology and operational expenses are rising. Additionally, customer expectations of a brokerage are also increasing drastically. Brokers are in a catch-up mode with their expectations.

What exactly does 'catching up' with customer expectations entail?

Most of the brokers do not understand technology at all. It is not about adding an extra server or some superficial bells and trinkets here and there. The real challenge is to scale up offerings, and unfortunately, trading apps haven't kept pace with the kind of digital evolution one sees in other business segments. Be it building a robust backend infrastructure or creating a comprehensive system architecture, brokers still need to strengthen their digital muscle to meet the surge in retail trading.

Will you be increasing brokerage fees in the near future? If so, will it have an impact on your existing customer base?

It's too early to comment on that as we don't know when the new regulations will be implemented. However, I believe that brokerage rates have remained stagnant for the past decade while the cost of doing business has increased substantially. In order to survive in the long term, brokerage fees have to go up, and I see them going up by anywhere in the range of Rs 30-Rs 50 across different segments. It will depend on the competitive landscape and what other players do.

Nevertheless, I think fees should increase as many revenue sources that existed before no longer exist today. Additionally, many new-age brokerages may assume that user growth will be sustainable, but if customers have a bad experience in the initial months of investing or trading, they may leave.

This is what happened after the 2008 crisis, and many participants left the markets and have not returned even to date.

As a brokerage, have you noticed a decline in trading volumes from the retail traders in the past 2-3 quarters?

We have not seen a dip in trading volumes. In fact, in 2022, we were the fastest-growing stock broker in the country. While the industry as a whole saw a de-growth last year, we continued to grow because our customer acquisition strategy focused on sustainability rather than acquiring customers at a rapid pace. Our strategy has been primarily inbound, and we currently have around 4.5 lakh customers.

We believe that traders need to mature in the market and chasing customers is not a sustainable strategy. Last year, we hit a top line of over Rs 100 crore. The bottom line margin was around 25-30 percent.

Are you observing any impact on trader/investor participation due to the prolonged market correction?

Our customers mostly trade in the top 500 NIFTY and NSE 500 stocks, and our user base is mostly in the 21-40 age group. We have seen participation from this broad age group, with a lot of people who are working and who are not yet working participating since 2020.

However, with work from office picking up from the past year, people don't have enough time as before to trade regularly, and, naturally, volumes have started to dip. This was not a surprise, and we were prepared for it. After being in the industry for quite some time, we know how difficult it is to reactivate customers. Hence, we attract mostly active participants who regularly interact with the markets, regardless of their work schedule. This has helped us in maintaining a steady growth even as the industry witnessed a de-growth.

What are the internal preparations as far as the extension of trading hours is concerned, be it in terms of the interest derivatives market or the mooted extension in the equity and the equity derivatives market?

Actually, interest-rate derivative participation is very low in India. This is mainly because India is an equity-focused market and the construction of interest rate derivatives is different from other countries. Therefore, there is no need to prepare our team for extended trading hours in interest-rate derivatives. However, I do think that market hours should be extended to 5 pm as it would allow more people to trade and invest regularly.

The current market timings – from 9 AM to 3:30 PM -- do not always correlate with people's availability as they may have work responsibilities during the first half of the day. Regarding the controversy surrounding the extension of market hours to midnight, it is not about making more money for exchanges and brokers. Rather, it is about making the markets available for investors to hedge and speculate.

It is important to have avenues for investors to hedge their positions, especially during unexpected market events, especially global events. Therefore, I believe that at least index futures should be allowed for extended trading hours to provide market participants with opportunities to hedge or speculate.

How will extended trading hours work for you? Will it force you to jack up your brokerage because your operational, technology and all sorts of human resource costs go up?

Everything cannot be evaluated on cost-benefit alone. It has to be evaluated on the design of the product and the merit of the marketplace itself. Markets have to be available for market participants to hedge. Extending market hours could be a UPI moment for the Indian stock market. Why was UPI a hit? Not just because it was free.

It became a hit because you could transfer money to anybody in a jiffy at any time. It's the 24-by-7 into 365-day availability that caused it to become a success story. It's the same with extending trading hours, too. It's about availability, it's not about the fee here. Also, what it does is, if markets are available for trading, people from different time zones can participate, NRIs sitting in the US, Canada or in the Gulf, and in all other parts of the world, can trade in India.

One of the main reasons, apart from taxes, of people trading more in Singapore is that the Singapore market opens sooner than in India. So they can hedge their entire exposure over there and derivatives are available for hedging. By extending trading hours, India too can have that leverage among the global markets.

How do you foresee your company growing its top line and bottom line in a scenario of decreasing retail investor participation?

FYERS isn't necessarily catering to the first-timers or the average Joe. We are not aiming to pull in a crowd of amateur traders. We are creating a brand for ourselves that targets mature traders and investors. Our technological edge pulls in traders who stick around for a longer time, and have a genuine determination to build wealth in the market. We understand our own positioning in the markets and are targeting gradual growth over hyper-scaling.