ETMarkets Smart Talk: Our sales will continue due to derivatives, says Prakarsh Gagdani, CEO, 5paisa.com

ETMarkets Smart Talk: Our sales will continue due to derivatives, says Prakarsh Gagdani, CEO, 5paisa.com – Mail Bonus

5paisa.com’s leading discount brokerage platform, which added 13.5 lakh customers last year, says its derivatives turnover has grown more than 230 percent last year. “We see a lot of interest in retail there and because derivatives trading can also take place in volatile and side markets, we see that turnover will remain and even grow in the coming quarters. So overall, I think it is persistent behavior or interest of retail investors on the investment and business side, “says Prakarsh Gagdani, CEO of 5paisa.com.

Edited excerpt from an interview:

In FY22, your customer base doubled to 2.73 million. After reporting great numbers, how challenging is it to sustain exchange rate developments in the new fiscal year given how volatile stock markets have become?
Despite adding 13.5 lakh plus customers per year and our last running rate was almost 1.3-1.4 lakh customers, I do not think it is a challenge to maintain the driving speed or grow from here. Even today, despite all the growth we have seen in the last 2 years with India as a country, doubling on the basis of demat accounts in just 2 years, we still have a small spread, almost 4.5-5 percent of the population. There is a lot of room for growth. That being said, as a sensible practice, we also monitor the quality of the account. Our goal is not only to acquire customers for its benefit but also to acquire customers who are genuinely interested in business. So the challenge is not to maintain the running speed, but the running speed can double or maybe increase three times from there. The challenge is to maintain the customer’s quality in an unstable market.

If I look at the average daily trading card of 5paisa, you have recorded growth steadily in each quarter over the last two years. All this despite the fact that Nifty has fallen by almost 7 percent so far this year. Isn’t that a very healthy sign of a sustained interest in stocks?
Looking at the markets in general, turnover in the cash market has remained virtually unchanged or rather decreased last year. But that is because trading has shifted to derivatives and turnover in the cash market is broadly for investment. What we are seeing is that clients are entering the stock market and investing slowly, mostly through systematic investments. Systematic investment can be either through mutual funds or through our products such as stock-SIP or through their own systematic behavior of investing some money each month. So that trend is healthy and it will continue. We are seeing very good growth on our derivatives side. So our derivatives turnover has grown more than 230% in the last year. This is where we see great interest in retail and because derivatives trading can also take place in volatile and side markets, we see that turnover will remain and even grow in the coming quarters. Overall, I think it is the persistent behavior or interest of retail investors on both the investment and trading side. That said, the market is volatile and sometimes a sudden drop in markets can also lead to investment drying up for some time. We can not run away from the fact that it can happen in the near future too.

If you can share a little insight into how popular your mobile app is? How much of the turnover comes through the app and where do you see the growth curve going?
We are one of the first mobile apps in the country to have 70% plus turnover every day, not just today but since we started. But despite the scale, our mobile app today has more than 12 million downloads with 4.3 ratings. 80-83% of our turnover still today on a scale where we turn 1.2 million a day, comes from our mobile app. So our mobile app continues to be one of our main platforms and our preferred platform for users to come and do business.

Do you think that retail interest will decline as and when the market enters a period of growth?
Historically, we have seen that whenever the market enters a period of growth, retail investment decreases. Overall, we could not see such a sharp decline. But as I said, the stock market is volatile and there is always a limited supply of money among retail investors. If they do not find a return on the shares they have invested, they will step back and reduce their investments or even stop. So I think it’s a difficult reality that is very certain to happen in a bearish phase.

How much interest is there in opening new demat accounts before the LIC IPO? Will it drive the next growth period for discount company in India?
Everyone expected that LIC IPO would bring tremendous growth in the demat account, but even in the initial phase before March, we do not see very very strong growth of retail investors. But there is definitely an increase that usually happens 3 to 4 days before a big IPO comes and we have seen that. But there is no big difference that we expected demat accounts to be opened for LIC IPO. It’s something we are not seeing.

But when these newcomers open a demat account to invest in a LIC IPO, how hard do you think it would be for them to stay active?
Stock investing by any means, most clients come with an IPO route. So if a client makes a profit on investments, then it is the only trigger for the client to stay active. Because if you invest 14-15 thousand rupees in LIC IPO, you get a dividend and you get a 15-20% return. This trust in stocks as a commodity and you always see that if stocks can give you 15% and you compare it to all other investment opportunities, then it is extremely less compared to stocks. So then retail investors will automatically start investing their money with the profits they have made on this LIC IPO. I think it’s a very, very good way to get into the market and pretty sure that if people make a profit, it will continue to be active by investing more money in other stocks.

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