Retail rush drives mobile trading volumes at BSE, share up 711 bps in a yr

Nearly 20 mn new demat accounts added since March 2020. Meanwhile, share of individual retail investors in NSE's cash market turnover shot up from 39% in FY20 to 45% in FY21

The influx of retail investors is driving mobile trading volumes. The proportion of the cash market turnover attributable to mobile phones has jumped 711 basis points in the past one year to 18.13 per cent in June on the BSE.

Market players attributed this to increased share of individual retail investors in overall volumes amid entry of new investors. Since March 2020, close to 20 million new demat accounts have been added. Meanwhile, the share of individual retail investors in NSE’s cash market turnover has shot up from 39 per cent in FY20 to 45 per cent in FY21.

The share of mobile trading on the NSE, however, has remained stagnant around 22 per cent levels, which experts say is significant on an absolute basis.

If one looks at a longer horizon, the share of mobile trading has jumped many fold on both the exchanges. The share of cash market trades carried out on mobile phones was 2-3 per cent in June 2016 on the BSE and NSE.

Higher smartphone penetration, lower data charges, and more millennials and GenZ investors becoming active-traders post-pandemic are attributed as the reasons behind this trend.

According to market experts, easy onboarding is the biggest factor that contributed to the rise in mobile trading.

“Easy onboarding made it easy for all forms of trading. Aadhaar is one of the tipping points for the broking industry in the last 10 years. About 75-80 per cent of our business happens on mobiles,” said  Nithin Kamath, Founder &CEO Zerodha.

Prakarsh Gagdani, CEO and Director 5 Paisa Capital said onboarding through Aadhar helped mobile trading as opening a demat account became easy. Since it became easy for people to open demat accounts on mobile phones, people started trading more.

Experts said once brokers realized investors were adapting to the digital medium much faster, they started investing more in technology. And post-pandemic with the limited availability of dealing room staff the volumes that came through dealers shifted to mobiles.

Earlier, clients used computer-to-computer link (CTCL) systems of brokers to place orders with the help of dealers. Institutional investors and high-frequency traders use the co-location facility to place large-sized trades on the exchanges.

The advent of mobile-based discount brokerages has also led to the rise in the use of mobile phones for trading.

“When discount brokers like us started, we focused only on mobile trading. All top five discount brokers have 75 per cent of their turnover on mobile and hence the overall rise in mobile-based trades,” said Gagdani.

The rise in mobile trading has helped brokerages save costs as it has reduced their dependence on dealers—personnel used to punch orders. This has also led to significant reduction in erroneous trades.

“Dealers come at a salary range of Rs 25,000-Rs 40,000, and there is a limitation to the number of trades a person can put. Because some dealers recommend trades, the probability of clients incurring losses tends to be more. And the frequency of trading also tends to be more because when someone recommends you trade. On mobile customers do it themselves. The longevity of the customer is more though the number of trades he puts is less. In terms of cost, it is far cheaper. What you need to invest is in developing a good quality app,” said Gagdani.

Moreover, it helps brokerages to scale their business at a bigger pace.

“Last three-four years the number of dealing calls we get have reduced even though we have grown 20-30 times in terms of our customer base but the number of dealers have remained the same or even reduced. All these new customers haven’t forced us to hire dealers,” said Kamath.

Some believe the share of mobile trading could peak at current levels given the limitation of the medium.

 “A lot of active day traders like options traders use desktop and trade. Algo trading does not happen on mobiles. If you look at the percentage of trading turnover, that number has plateaued. I don’t think trading turnover wise there is growth. But user wise, all the growth will happen on mobile trading,” said Kamath.

Moreover, trading through mobile phones is still confined to big cities despite many new demat accounts being opened in small towns.

“The issue is brokers in India track customers from their address proof. Millennials who come to the city for jobs don’t change their address proof. If you look at address proof, it looks like we have many customers from Tier 2 and Tier 3 cities. But if you are going to look at users based on IP addresses from where they are accessing the platform, then it is concentrated in the top 10-15 cities,” said Kamath.