We have seen a drop in retail participation in cash segment: 5paisa CEO

The roller-coaster markets have taken the sheen off equity as an asset class in the last few months. PRAKARSH GAGDANI, chief executive officer, 5paisa.com, tells Puneet Wadhwa in an interview that while traders are having a busy day amid market volatility, investors are waiting for a good opportunity to re-enter. Edited excerpts:

It has been a choppy few months for the markets. Are the risks fully priced in now?

In the aftermath of coordinated rate hikes by global central banks and the Reserve Bank of India (RBI), we expect continued weakness in markets in the near future. Sustained selling in the US and global risk-off sentiment will continue to weigh on Indian equity and currency markets. Considering the uptrend in inflation further rate hikes by RBI is expected. Overall, the sentiment will likely remain weak for a couple of months.

How have retail investors responded to the market turmoil?

We have seen a drop in retail participation in the cash segment. NSE’s cash turnover (retail) last month was averaging around Rs 34,000 crore a day, which for this month is around Rs 25,000 crore. That said, the derivative market average turnover has improved in May. So with volatility, the derivative trading has improved, while the cash market investment has taken a dip. It looks like traders are having a busy day amid this volatility and investors are waiting for a good opportunity to re-enter.

What’s the road ahead for broking business in the backdrop? How does 5 Paisa plan to cope up?

In the last two years, the cost of running business has gone up with all the regulatory changes. That said, I believe that all are absolutely positive changes and have helped in markets to be more transparent, robust and credible. However, it has also added the cost of running business from a broker’s standpoint. I'm sure that we (5paisa) will be able to bear the volume shrink if at all it happens. However, we do not see that happening right now.

What's the total folio / demat account count with 5paisa and what has been the run rate in the past two quarters? Of these, how many would you say would be active traders?

Overall, our customer base is almost 2.9 million. Of that, nearly 0.7-0.8 million customers were added in the last two quarters. Our active trading base is healthy at around 65 per cent.

With effect from May 02, Sebi has barred brokers from using one client’s collateral to fund another’s margin. What's the industry-wide impact of this move?

There will be a temporary impact on the derivatives segment as customers will have to fund at least 50 per cent as far as the cash component is concerned. Though there will be a temporary impact on the trading, investors will come around. If the overall market sentiment is positive and people end up making good money on their investment, I think they will come with more margin money. We saw the same and we saw exactly the same thing when peak margin was getting implemented last year. Whenever there is a regulatory change, customers take time but adjust to the new regulations and business continues as usual.