I don't see any major upside till Diwali: Aseem Dhru

Interview with Chief executive officer and managing director, HDFC Securities

Barring the recent fall, Indian markets have risen phenomenally in the past 18 months, leading to a surge in volumes across market segments, boosting fortunes of brokerages. Many brokerages have upped their ante and are looking to capture a share of the expanding pie. Aseem Dhru, chief executive officer and managing director of HDFC Securities, spoke to Vishal Chhabria on the company’s revamped online portal and mobile trading app, the outlook for the business and Indian markets. Excerpts:

What are the key changes you have brought about in the revamped online platform and mobile app?

The product provides more options and comes with improved speed. Its design has been kept light, so that it also addresses customer needs, taking into account the system infrastructure in non-3G areas. Second, the entire look and feel of the ‘user interface’ has been changed, and the product provides 11 new languages, covering 92 per cent of the country’s population. This is in line with HDFC Bank’s strategy of going deeper into the country, into tier-II, -III and smaller cities. The mobile app is the only one in the world to provide so many languages. This is not mere information but one can actually transact, except for the numericals, everything is in the desired language.

On the tech front, what are the changes? How different is it now?

Each device has different internal layouts. The challenge is how does one render a screen that is form-independent. So, it does not matter which device or operating system you are on, the screen should appear the same. Second, we have tried to use the inherent strength of each device in the app. Third, when you download the app, the entire passive information is sitting on the phone. Only the dynamic information such as rates is coming in. Thus, it improves the speed and secondly, reduces the data bill for clients.

For the online portal, the rate refresh time has reduced by 75 per cent. Second, earlier, if clients wanted to access a different set of information, they had to go to different screens. Now, we are showing a lot of it on one page through different widgets. It helps cut down on the number of clicks to execute a transaction. There is also an element of customisation.

We have also created a unique concept of ‘Digital RM (relationship manager)’ that helps provide info on the offerings in the market to the clients based on his need and risk profile. We’ve also created a real estate portal to take care of their realty needs.
 

On the charges front, HDFC Securities’ charges are a tad on the higher side? 

Unless you are a trader, the brokerage costs really doesn’t matter in the overall scheme of things. Today, a brokerage charge is barely a third of the other transaction-related charges a client pays. Usually, it is only the trader for whom every basis points maters. But for an investor, as long as he is getting good research ideas and money-making opportunities, people are happy to pay this slight premium as long as they find value and convenience. 

We have offerings for everybody. Some of these tools we have built are for traders. Today, for instance, every basis point of speed I increase, the trader can make more money because the arbitrage opportunity comes to him faster. 

So, while we cater to everybody, as a bank, we are focussed on the middle-class and want them to build good investment portfolio over the long-term. Which is why we have products like systemic investment plans. People who track markets on a daily basis seldom create wealth. 

Your competitors including traditional brokerages are also launching online and mobile trading platforms. How do you see this impacting the industry and your company? 

Every company has its own niche. But, overall if you see, the competition has reduced. The number of brokers on the exchanges has actually reduced from upwards of 7,000-8,000 to about 1,500 now. Likewise, sub-brokers have also reduced. We don’t see growth as a problem and are happy to co-exist with our competitors. Last year, we grew by 100%. 

What is your market share target? 

We have a 3% market share in retail and are looking at reaching 5% in about two years. We are now the second largest broking house on NSE, and revenues and financials are in line with that. We made a profit of Rs 250 crore last year. 

What’s your call on markets?

The longer-term story stays and this is a good opportunity to buy on dips. In the short-term, there is pain and the markets will see some pressure. All asset classes are under pressure. Earnings also have to catch up with valuations. The challenge is the continuous downgrade of corporate earnings. I don’t see any major upside till Diwali.

Could you could throw some light on the earnings?

For the March quarter, information technology results were not good. Banking results will remain under pressure. There is rural demand coming off for FMCG (fast moving consumer goods) players. Commercial vehicles and some passenger vehicle players seem to have done well. However, not too many sectors can drive growth.

What is the downside risk for the markets?

Markets are a slave of earnings and PE (price to earnings ratio). Earnings are not showing signs of a revival. There are no green shoots. The compression in earnings will drive markets lower. FIIs (foreign institutional investors) are realising there are better options in other countries such as China and Japan. Overall, investors need to be convinced the government will deliver on its promises.

Also, in India, a second bad monsoon will lead to a major problem. Now, the new problem is the change in the timing of rains. A lot of standing crops, including sugar, wheat and mango, among others, have been destroyed in Gujarat, Maharashtra, Punjab, Karnataka, etc.

What are the possible implications of the agri-distress on the economy and corporate earnings?

Agri-distress due to un-seasonal rain can potentially spike food inflation, continue sluggish demand in rural India for two-wheelers, tractors, paints, etc. So, mainly rural discretionary spending will be negatively impacted, and consequently earnings of companies in these sectors will get adversely affected. It would also create asset quality issues in rural-centric lenders like public sector banks (which have at least 13 per cent exposure to rural from the total loan book) and NBFCs (non-banking financial companies) like Mahindra Finance. The real impact will, however, be seen after May.

FIIs have been sellers for some time now. What’s the trend looking like?

The recent retrospective tax issue of MAT has acted as catalyst to FII selling but the main issue has been the lack of on-ground recovery. These have resulted from earning downgrades in many sectors where valuations were pushed higher on hopes of very quick recovery.

Sluggish demand scenario is being seen in domestic cyclical and in sectors such as 2-wheelers, cement, tractors, paints and even the FMCG sectors.

Low credit growth plus asset quality continue to trouble banks. Even export-centric sectors like IT has had its own issues like cross currency headwinds due to Euro depreciation & structural slowdown in orders from sectors such as energy (due to fall in oil prices), insurance and telecom.

What is your assessment of the government’s efforts to turn around the economy? And, how long will it take for economy and corporate earnings growth to pick up?

Government spending has to start quickly in order for it to help revive demand for the above-mentioned sectors. Monsoon will also be a key factor as rural India is already going through a lot of stress. But if both these factors turn positive then we can surely expect a better H2 in FY16.

However, secular growth sectors such as private sector banks which will continue to show growth in earnings in excess of 15% CAGR. Additionally, a cyclical stock like Maruti has shown excellent earnings on the back of reduction in discounts and apart from currency benefits. It has seen steady demand from under-penetrated categories.