About a quarter of dabba traders shift to organised trading platforms

Discount brokers reap huge gains with 15-20% growth in members, 20-25% jump in volume post note ban

Fearing demonetisation-like action from the government and faced with intermittent raids by the market regulator, several dabba traders have shifted to organised trading platforms across the commodity, equity and currency sectors. Major beneficiaries of this shift are discount brokers, whose transaction costs are much  lower than those of full-service brokers.

As a result of this, the three leading discount brokers, Zeroda, Samco Securities and 5paisa.com, with a cumulative market share of around 90 per cent, have seen a sharp 15-20 per cent growth in their membership base and 20-25 per cent growth in business volumes over the past three months.

Trade sources estimate there are around 25-30 dabba operators each in all major centres including Mumbai, Nashik, Surat, Ahmedabad, Vadodara and Indore, with thousands of trading members dealing fully in cash. But, their business came to standstill due to the liquidity crisis following demonetisation in November.

"A lot of traders have shifted to exchanges after demonetisation. So, not only discount broking but also full-service brokers have seen a sharp increase in new enrolments post demonetisation. Dabba traders dealing in cash went out of the system after demonetisaion. Since they want to remain in business, they are gradually coming to the organised system of trading. We have seen around 15-20 per cent growth in new members' enrolment and 20-25 per cent growth in business," said Nitin Kamath, Founder and Chief Executive Officer, Zerodha, India's largest discount broking firm with a market share of around 50 per cent.

The India Infoline (IIFL)-backed 5paisa.com, one of the fastest growing online financial services providers, sees huge opportunities in growing the discount brokerage market in India. Discount brokers like 5Paisa are online stock brokers offering cheap brokerage plans to retail and institutional investors in India.

Planning to list on the stock exchanges in July this year, 5Paisa estimates the discount broking market will contribute to as much as 50-60 per cent of total retail turnover within the next 2-3 years. This prediction is backed by the fact that the concept of discount broking in India was drawn from the US, where 70 per cent of retail volume happens through discount brokers.

According to Prakarsh Gagdani, Chief Executive Officer, 5paisa.com, "With technology and mobile penetration at the forefront, retail broking in India is poised to witness a tectonic shift. Discount broking will not just grow exponentially and take large chunk of market share in next 3-5 years but will also expand the retail participation in stock markets."

Post demonetisation, 5paisa.com has added around 100 new members, with its business volume rising to Rs 15,000 crore a day now from Rs 12,000 crore early November.

"Traders' major benefit is the cost of transaction, which works out to nearly a third that of dabba traders and less than a fourth of full service brokers. So, the shift from unorganised to organised trade has been happening more aggressively now than ever before," said Jimeet Modi, Founder and Chief Executive Officer, Indian Trading League (Samco Ventures), a company with an estimated market share of 20 per cent in discount broking.

While the count of regular brokers has been on the fall over the past three years, discount brokerage has been rapidly gaining popularity with retail investors as they offer a flat brokerage rate irrespective of the trade size as compared to traditional full-service brokers who charge a certain percentage of the trade value.

The government had taken the market by surprise with demonetisation. Traders do not rule out similar action to flush out cash trade. Apart from that, Sebi has also been taking actions against dabba traders to catch hold of cash business dealers.