Landscape of retail broking in absence of these pioneers?
Indiainfoline, India’s largest retail brokerage firm announcing its decision to wind up retail broking has come as a shocker on the back of the recent announcement from HSBC shutting down their retail brokerage business after buying it form IL&FS a few years ago. Indiabulls, over the last few years, has also moved its focus completely away from retail broking.
IL&FS Investmart was among the first to make internet trading popular in India followed by Indiabulls and Indiainfoline who took it to the masses and built a vast business empire from the retail broking revenue. Knowing that these pioneers of retail broking in India would probably not be competitors in the near future will make the landscape of retail broking very interesting.
The recent announcements also probably explain the reason for a status quo in terms of technological advancement in the retail broking space over the last many years, the big brokerages of the past are no more looking at the retail business as their primary source of revenue and have completely stopped expenditure on R&D, technology or offering innovative products. When we decided to start Zerodha over 4 years back, we had 2 reasons:
1. Firstly, we knew that the way Indian brokerages were pricing was outdated and not in sync with how it was in the developed markets. If, in an online environment, the cost of executing a trade doesn’t go up with the size of the trade, then why should the charges go up? Hence we started the business charging only Rs. 20 per executed order irrespective of the size of order. This way of pricing is also called discount broking.
2. Secondly and more importantly, we realized that other than probably Indiabulls/Indiainfoline/Sharekhan putting up online platforms in the early 2000’s, there has been no innovation in terms of tools or platforms that traders in India have access to. Traders in most developed markets are a lot more professional but the reason is because they have access to those professional tools which give them an important edge to win. Using Technical Analysis while trading improves the odds of winning significantly, mainly because most indicators would never let you go against the trend – the biggest reason for traders to lose money in the markets. Though Technical Analysis is sworn by professional traders across the world, none of the platforms in India can help you for example write and backtest strategies before going live on multiple strategies to diversify your risk and also increase the odds of winning. This is one of those chicken and egg situations, since platforms don’t give you an option to do so, most people in India don’t know or follow backtesting before putting money on their strategy.