COVID-19 led to the emergence of an online world, dependent on IP addresses and WiFi networks. From shopping for essentials to work and education, to virtual darshans and health checkups; everything was happening online.
And owing to the need-of-the-hour, the same thing happened in the finance industry. The boredom and unemployment caused by the lockdown encouraged more and more people to join online stock marketing.
As many as 63 lac new demat accounts were opened during the fiscal 2020, which was around 40 lac in 2019.
And so, brokers across the market reported a high surge in their clientele. The pandemic indeed came as a knight in shining armor, especially for the online brokers, thus forever changing the brokers-landscape in India.
The year 2020 ended up blurring the lines between full-service and discount brokers. The lightning-fast transformation of various industries to the online landscape, also compelled the leading full-service brokers to start offering discount brokerage plans in order to survive the tough competition.
Even the leading brokers like Kotak Securities and ICICI Securities had to come down from their high thrones and reduce their pricing to offer low-cost plans just so they could retain their client-base, let alone acquire new clients.
Discount brokers become the market kings!
Discount brokers provide their services online and have little to none physical presence. So, in a technologically advancing world, they were already becoming a popular choice among Indian investors.
But, this popularity saw a manifold increase when the pandemic struck. Discount brokers gained significant traction in their services and acquired a dominant market share because of the social distancing norms and lockdown restrictions. Also, opportunities arising out of market corrections encouraged many new traders to get into the market.
During the lockdown in April and May, the top 3 stock brokers, Zerodha, Upstox and 5Paisa all saw their clientele increase by 37.25%, 25.58% and 30.35% respectively. In fact, the daily average trading volume was around 8.5 million, thus marking an increase of over 80 percent from regular levels.
Of course, the pandemic became one of the major reasons behind such an influx of investors in the market. Unemployment, and pay cuts gave rise to the need for additional income, especially among the young crowd. Then there was also a bored crowd which was looking for new things to do. Owing to such reasons and more, a lot of people decided to take a plunge into the investing world.
Can discount brokers retain their dominance?
It is true that COVID-19 did act as a boon for the Indian brokers, more particularly, the discount brokers. Infact, it won't be an exaggeration to say that the pandemic completely transformed the broker scenario of India, considering the exponentially increasing client base and popularity of online brokers.
According to the Economic Times, in mid-2020, the rating agency ICRA predicted a double-digit topline growth for the broking industry in FY21 due to a significant increase in trading activities.The assessment projected a 10-12% rise in the aggregate revenue to Rs 23,000 crore for the broking industry in FY21.
However, this is just the “sunny side up”. Due to the recent economic slowdown, a lot of brokers failed to meet their obligations. In October 2020, Business Standard reported that the National Stock Exchange has declared 15 brokers as defaulters since September 2019.
The BSE has 14 defaulters, with most being common to both exchanges. The total number of such defaults between September 2019 and September 2020 is almost higher than the sum of the previous 10 years' defaults on the BSE. It exceeds the sum of all brokerage defaults on the NSE over around the previous 15 years.
Given such alarming numbers of broker defaults, it would be no surprise that traders and investors get awry. But then again, "Risk hai, toh Ishq hai!".
So, what do you think? Can the Indian discount brokers live up to the trust of the investors and retain their dominance?