Brokers’ Shares Surge As Retail Investors Join In Droves During Pandemic
Stockbrokers on the trading floor of Motilal Oswal Financial Services’ office in Mumbai, India. (Photographer: Vivek Prakash/Bloomberg)

Brokers’ Shares Surge As Retail Investors Join In Droves During Pandemic

Shares of India’s brokers rallied as retail investors flocked to equity markets betting on a rebound from the worst selloff in more than a decade in March triggered by the pandemic.

Investors are pinning their hopes on an increase in the fee income of brokers as trading volumes jumped. More trading clients also means lower customer acquisition costs since everything else remains unchanged.

Shares of broking firms jumped 14-86% in the last month, led by 5Paisa Capital Ltd. The stocks have surged 35-208% since March-end. The nation’s only publicly listed depository Central Depository Services India Ltd. jumped 40% during the period.

Retail participation in markets spiked globally as the Covid-19 disrupted trade, triggering the biggest slide in equities since the 2008-19 crises. A breed of ‘Robinhood traders’, called so after U.S. discount broker Robinhood Markets, plunged into equities during the lockdowns, hoping to gain as stocks recovered. Indian brokerages, too, saw a spike in local customers.

New client additions as well as clients trading in cash and F&O segment increased in the past four months, Ajay Menon, managing director and chief executive officer, broking and distribution, Motilal Oswal Financial Services Ltd., said in response to text queries. The growth in cash volume has been strong with a lot of action in mid and small caps, he said, adding that the brokerage has added 5.5 lakh clients since April.

Discount brokerages like RKSV Securities (Upstox), 5paisa Capital and Zerodha saw active client base increase two to fourfold over a year ago in the quarter ended June, according to data on NSE. That was driven by trading on mobile phones. Angel Broking, Kotak Securities, ICICI Securities and Motilal Oswal saw a jump of 24-79%.

The spike in pace of fresh additions this fiscal, coincided with the world’s strictest lockdown.

  • 5Paisa Capital, according to its exchange filing, added 1.6 lakh accounts in the quarter ended June.
  • Upstox, operated by RKSV Securities India Pvt., almost added 2.5 lakh customers since April 1, according to co-founder Ravi Kumar.
  • Zerodha is adding 200,000 accounts every month on an average, said founder and chief executive Nitin Kamath.

With the pandemic accelerating digital growth, millennials thronging to capital markets, and a buoyant stock market, Prakarsh Gagdani, chief executive at 5Paisa Capital, sees “incredible growth is expected in coming quarters”.

Growing Fee Income

Brokerage fee income rose in the last three quarters and is expected to continue to grow in the quarter ended June when listed firms report numbers.


ICICI Securities, India’s-second largest brokerage, is the most expensive among peers, trading 14 times its book value and twice the two-year average. 5Paisa Capital and IIFL Securities Ltd., too, trade higher than historical averages.

The valuations of Motilal Oswal aren’t strictly comparable with the rest as it also owns an asset-management business.

Still, there’s a risk that retail participation may fall again as work from home ends and people start going to offices after the pandemic is controlled. Moreover, the competition is cutthroat with discount brokers offering services for almost nothing and could eat into the growth of traditional brokerages.

Zerodha’s Kamath, however, pointed out that client additions is not just a “sudden influx of traders”. “It’s heartening to see investors choose blue-chip large-cap stocks and mutual funds,” he said. Zerodha’s direct mutual fund platform, he said, has seen flows and transactions jump two to threefold compared with the pre-Covid levels.

While there has been a temporary surge in retail participation, structurally capital markets have done well, Vikas Khemani, founder, Carnelian Capital Advisors, told BloombergQuint over the phone. Long-term investing in brokerages makes sense as the industry is in a consolidation phase.

Also read: America’s Tech Stock Mania Draws in Amateur Traders From India

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