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'Younger investors start their journey with very little capital so they are risking less while they have a lot of time to experiment and learn early on.'
Shares of most brokerages have rallied substantially over the past year amid a buoyant outlook for the sector and record addition of clients.
Angel One and Arihant Capital have seen their share prices surge 323 per cent and 230 per cent, respectively, while the likes of Emkay Global Financial Services, Geojit Financial Services and ICICI Securities have all gained more than 50 per cent.
During this period, the benchmark Sensex rallied 19 per cent.
According to market observers, the broking industry has witnessed a lot of changes over the past few years, led by disruptions from discount brokers, buoyancy in the equity markets, digitisation, and increased interest among various investor groups.
Most brokers used the digital route to make deeper inroads into tier-2 and 3 cities/towns in the aftermath of the pandemic and add to their active client base.
Low yields in the fixed-income asset class, relative underperformance of several active mutual fund schemes, and the entry of millennial investors have helped their cause.
'We believe the industry is moving towards a fee for service model wherein a customer is charged a fee as per services availed, instead of a standard or fixed charge. With financial savings rising and lower interest rates, equity as an asset class will continue to remain attractive,' according to a research released by ICICI Securities last year.
The top five digital-only brokers -- Zerodha, Upstox, Angel One, 5paisa, and Groww -- now have a market share of over 50 per cent in active clients.
This figure stood at 17 per cent at the end of FY19.
A few years ago, brokers such as Zerodha had disrupted the industry with their discounting model, which remains the mainstay of digital brokers to this day.
Most digital brokers charge a flat Rs 20 for intraday and Futures and Options trades.
Traditional brokers, too, have slashed their charges since and pricing is no longer a key differentiator.
They have also been hiring aggressively on the digital technology and sales sides over the past year.
"While everyone focuses on adding more users, I think brokers who can find ways to retain existing customers by finding ways to reduce the money mistakes they commit will do better than their counterparts," said Nithin Kamath, co-founder, Zerodha, the country's largest broker.
"This potentially means foregoing revenue in the short term. It is, maybe, finding the right product for the users and nudging customers away from higher-risk products."
Retail participation in the stock markets is likely to continue to increase steadily in 2022.
Largely, new demat accounts are now being opened by the younger crowd, particularly Gen Z.
"This is great news since younger investors start their journey with very little capital so they are risking less while they have a lot of time to experiment and learn early on in their careers," said Tejas Khoday, co-founder and CEO, FYERS.
The number of active demat accounts surged by a record 30.7 million to nearly 80 million in 2021, data provided by depository firms CDSL and NSDL shows.
"The stockbroking industry is going through a consolidation phase aided by Sebi's structural reforms that are aimed at reducing systematic risks and increasing transparency in the marketplace," said Khoday.
"Only a few brokerages are able to satisfactorily cater to the requirements of new-age investors."
Feature Presentation: Aslam Hunani/Rediff.com
