Retail investors are nervous; expect time-wise correction: Prakarsh Gagdani

Commenting on the extended trade timing for interest rate PRAKARSH GAGDANI, chief executive officer of 5paisa says that the fatigue of longer trading hours for regular traders will soon weigh in.

With the National Stock Exchange extending the market trade timing for interest rate derivatives, PRAKARSH GAGDANI, chief executive officer, 5paisa, tells Puneet Wadhwa in an interview that while the cost of running the broking business will increase, the fatigue of longer trading hours for regular traders will soon weigh in. Edited excerpts:

Do you think the markets can correct from here on?

The recent federal Open Market Committee (FOMC) meeting minutes have indicated that the Fed is inclined towards more hikes in the near future to curb inflation. However, the global markets have mostly discounted this. Investors would wait for more clarity on when the inflation would start cooling and the Fed would pivot, which could then lead to the next bull-market in equities. But till then, we could see the markets oscillating within a broad range; and thus, we expect some time-wise correction in the short term.

How are retail investors approaching the markets now?

Retail participation in equities through the secondary market has been muted for the entire 2022. If you see the cash segment average daily turnover (ADTO) of NSE, then from a peak of Rs 40,000 crore in October 2021, it has now come down by 50 per cent to just Rs 20,000 crore in January 2023. Markets, in this period, have also been range-bound. So, retail investors are a nervous lot today. That said, the investments through systematic investment plan (SIP) route, which is more of a passive investment, is increasing. Retail confidence in equity is intact from a longer term perspective, but they are being cautious investing directly.  

NSE has extended the market trade timing for interest rate derivatives to 5 pm. What are the likely implications for the stakeholders?

Exchanges are proposing a longer market timing and are consulting with all stakeholders. Extending it in interest rate derivatives is a step in that direction. On the good side, the turnover will increase and so will the brokerage, traders will get more time to trade in markets and will insulate themselves to a certain extent from global volatility. On the other hand, the cost of running business will increase, time taken for operational activities will shorten. Lastly and most importantly is the fatigue of longer trading hours for regular traders will soon weigh in.

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How do you see the fortunes for the broking industry play out over the next few quarters?

Broking industry has always been a highly competitive space. In the last three years, it is extremely clear that masses get attracted towards discount brokers. Actually, I don’t call ourselves a ‘discount broker’ but a digital broker. Overall experience for a retail customer is far better with digital players than a full service player - be it cost, ease of trading, technological expertise, etc.

Secondly, there is definitely a consolidation happening with top 10 brokers constituting 70 – 80 per cent of the market share. In the last couple of years, the cost of running a business has also increased substantially. That’s because of increased technology investments to run the platform, working capital requirements in the light of regulatory changes and overall operational cost to serve millions of customers.

Can you elaborate more on the likely industry consolidation?

Broadly you will have two – three players covering the mass market and another two – three players creating their niche in a particular sub-segment. The same is expected in the broking industry. In the last couple of years regulatory changes have been at a pace never seen before. With every change, the cost of running a business is increasing. ‘Capital’ is a big entry barrier now.

One needs heavy investment in technology, people and operations. Working capital requirement is 100 per cent on own capital, as funding options from banks and non-bank finance companies (NBFCs) are extremely limited. So, there will definitely be an impact on small brokers. They will have to identify their niche; else it will be difficult for them to run business as it will simply not make business sense.