Groww, Anand Rathi IPOs highlight strong hold of discount broking firms in Indian stock market

Going ahead, the broking industry in India, which was estimated to be valued at around Rs 450 billion in FY24, is expected to grow at a CAGR of 16-18% and reach a size of Rs 850 billion by FY28.

It is a well-known fact that discount broking firms now feature among the biggest players in the broking industry in terms of number of client accounts. While names like Groww, Zerodha, and Upstox feature among the top broking firms, data from the IPO documents of Groww and Anand Rathi have now revealed that the cumulative share of discount broking firms has more than doubled in the last five years.

According to data disclosed in the draft documents of Groww and Anand Rathi Share & Stock Brokers, the total share of discount broking firms has jumped to nearly 80% from just around 38-40% in FY20. Incidentally, this share — in terms of the number of active clients — was merely 7-8% around 10 years back in FY15.

More importantly, going ahead, the broking industry in India, which was estimated to be valued at around Rs 450 billion in FY24, is expected to grow at a CAGR of 16-18% and reach a size of Rs 850 billion by FY28, as per the DRHP of Anand Rathi Share & Stock Brokers. The estimates are basis a study — commissioned by Anand Rathi Share & Stock Brokers — by Care Edge Analytics & Advisory.

Also Read: Groww founders secured Rs 614 crore as performance incentives ahead of IPO

"The increase in financial literacy and reduced cost of investing due to emergence of discount brokers has contributed significantly to this growth. Moreover, these factors are expected to continue leading to healthy growth in the long term," stated the DRHP of Anand Rathi Share & Stock Brokers, while quoting the findings of the study it commissioned.

Meanwhile, Groww had commissioned a similar industry report to Redseer Strategy Consultants, which found that "digital-first investment & wealth management platforms have also added ~85% incremental new clients from FY2020 to FY2025".

"Digital-first investment & wealth management platforms (primarily operating on a discount
brokerage model) commands a dominant share of active clients, at 76 - 78% on the NSE in
FY2025, up from 38 - 40% in FY2020 and ~6 - 8% in FY2015," as per the Redseer report findings.

"Solving client’s need for real-time information, providing stock research tools, simplifying and real-time order placement at low-cost, digital-first platforms have moved ahead of the legacy brokers and are expected to continue strengthening their market share," as per the report whose findings have been widely quoted in the IPO DRHP of Groww, which is currently the largest broking firm in the country in terms of the number of active clients.

Also Read: Anand Rathi to launch Rs 745 cr IPO on Sep 23, price band set at Rs 393-414 per share

The Redseer report further highlighted the fact that the structural shift from physical to financial assets, particularly towards equities, has been a key growth driver for the capital markets.

"There is a growing preference in Indian households for financial assets... This has resulted in the contribution of financial assets in household savings growing from 40% in FY2012 to 47% in FY2024. The flow of household savings towards equities and mutual funds has also increased from ~5% in FY2020 to ~17% in FY2024 with equities as percentage of household assets being ~6% in FY2024," it said.

Similarly, the report by Care Edge, stated that India has considerable potential for growth in the broking industry as only 4-5% of India's population actively participating in stock trading, compared to significantly higher rates in countries like the United States (55%), the United Kingdom (33%), and China (13%).