'Retail participation in equity market has reached an inflection point'

In spite of a stellar run last year, India's retail participation is around the 4 per cent mark, unlike the US and China, where participation is 32 per cent and 11 per cent, respectively, he said

With retail investors now establishing a strong foothold in the Indian equity markets and transacting more via mobiles, DINESH THAKKAR, chairman and managing director, Angel Broking, tells Puneet Wadhwa in an interview that going ahead, the digital environment will attract a lot of new players in the broking industry, especially those who offer their services on mobile apps. Edited excerpts:

Angel has now transformed from a traditional broking firm to capturing more clients on its digital platform. What has been the thought process behind this shift? 

Since its inception 25 years ago, Angel has focused on using the best technology to create an optimal customer experience. Today, all our processes have been overhauled and digitised, enabling us to reach our clients in Tier 2 and 3 cities and beyond. We incorporated a host of digital offerings in our business, ranging from the mobile trading app to ARQ Prime, Angel BEE, SmartAPI, SmartStore, Smart Money, and Smart Buzz. This transformation enabled us to pass on to our clients the benefits we reaped from economies of scale in the form of a simplified flat pricing structure of Rs 0 for delivery and Rs 20 for intraday trades. Now, we are stepping into the future and establishing a stronger connection with the youth, Generation Z and millennials, by offering them our bouquet of digital financial products and services. This transformation has produced a consumer-centred master brand that encapsulates our new identity – Angel One. We are repositioning ourselves as Angel One, an umbrella brand that will house all its protection and wealth creation products digitally.

With more broking firms looking for a digital push, how far are we from the industry becoming overcrowded? 

There is no doubt that the digital environment will attract a lot of new players, especially those who offer their services on mobile apps. This will help expand awareness of financial products, which in turn will help advance market penetration. However, having an app or offering interactive engagement on a website will not guarantee success in this highly competitive arena. The key differentiator and driving force behind competitive advantage will be a business’s ability to give the client a best-in-class experience based on an intuitive and experiential understanding of the market. 

What about the margins and profitability?

Players with less experience and weak client engagement built into their apps will fall away or survive by serving niche segments of society. Eventually, there may be only a few players catering to the wider needs of the market. Initially, there will be a front-loaded cost in building a robust technology platform, but since the incremental cost of serving clients in a digitised ecosystem is not huge, the margin profile of the industry will remain insulated.

Is the moat big enough for the existing players to survive and grow?

India’s equity market is highly under-penetrated, with just over 4 per cent of the population having access to it. There is tremendous opportunity for many years of sustained growth, underpinned by the increasing market entry of Gen Z and the millennials and people from Tier-2 and Tier-3 cities and beyond. To access these markets efficiently and tap into this potential, it is imperative for players to use technology favourably. The biggest challenge for new and existing players in the broking space is to build efficiency while deploying technology at scale. Players who continue to operate under traditional methods will find it difficult to grow going forward. Transitioning to digital broking is far more cost-efficient, as the incremental cost of serving clients is negligible, and there are benefits of economies of scale that companies can reap.

How has Angel’s customer base grown in the past year? How many would be the first-time investors? Is the investor base getting younger? 

Over the last nine quarters, Angel has experienced robust growth in our gross client acquisition. Our client base as of March 2020 stood at over 1.8 million, which grew to over 4.1 million in the next year. This growth in one year was equal to the growth we had achieved over our 23-year history up to that point. By adding 2.4 million clients in FY21 and another 1.2 million clients in Q1-FY22, we have consistently grown our client base to approximately 5.3 million as of June 2021. Angel is now one of the largest players, as we add 1 out of every 6 incremental clients in the country. The median age of our newly acquired clients fell from 34 years in Q1-FY20 to 29 years in Q1-FY22.

How is the retail participation in the stock market different from the one seen earlier? 

In spite of a stellar run last year, India’s retail participation is around the 4 per cent mark, unlike the US and China, where participation is 32 per cent and 11 per cent, respectively. However, this growth is an outcome of the efforts of digital players who scaled themselves to deliver seamless services to clients. Another factor working in favour of the Indian market is the country’s young population whose net disposable income is increasing. Retail participation in equity market has just reached an inflection point due to the low interest rate regime, and with prospect of economic growth, the years ahead will see more people tapping into the merits of trading and investments in our markets.