Given the way the equity market is behaving, how do you see the growth in demat account additions in FY24?
As of January 2023, the number of demat accounts in India increased to 11 crore, up from 8.4 crore during the same period the previous year, representing a 31% growth. While these figures are promising, there is still much work to be done. India’s population exceeds 1.4 billion, yet only about 5-6% are currently investing.February data shows that your market share dropped 515 bps YoY to 9.4%. So what went wrong in between and how do you plan to regain lost market share?
Market share can be assessed in numerous ways. In fact, our revenue has experienced a substantial increase in FY23 compared to FY22, especially when compared to our peer-set. We have also become cash flow positive.
Upstox is dedicated to tapping into India’s growth potential, and everything we do is from a long-term perspective. Examining top-tier investment platforms in the US, such as Charles Schwab, Fidelity, Vanguard, and IBKR, reveals that each has been in operation for 40+ years and continues to add accounts at a robust pace. These firms have assisted millions of Americans in benefiting from the growth of the US equity markets.
We believe that Upstox shares a similar story, and it’s a long-term endeavor. India’s growth story is remarkable and just beginning to unfold. Our primary focus remains on solving one crucial problem: how to empower millions of people across India to benefit from the nation’s economic growth story.
What is your assessment of the impact on your revenue as a result of the STT hike? Do you see volumes getting impacted?
The influence of a rise in STT on trading volumes hinges on various factors, such as prevailing market conditions and investor behavior.
Generally, an increase in STT could potentially cause a decrease in trading volumes due to several reasons, primarily higher transaction costs. This may deter some investors from trading or lead them to reduce their trading activity, especially in short-term or high-frequency trading strategies where transaction costs significantly impact profitability. Additionally, market participants might be less inclined to provide liquidity or participate in market-making activities, resulting in wider bid-ask spreads and decreased trading volumes.
A higher STT may also encourage investors to retain their securities for longer durations to avoid incurring increased STT on frequent trading. This could potentially contribute to reduced trading volumes in the short term.
How good is the idea to extend market trading hours from a brokerage point of view? Will it really encourage people to trade more and thereby increase revenue?
We fully support SEBI’s decision to extend trading hours. Currently, any significant events occurring after market hours (post 3:30 pm) are only factored into the following day’s trade. By extending market hours, traders can quickly respond to such developments, both domestic and international, helping to reduce sudden volatility. Furthermore, extending the F&O market timings may also help reclaim trading volumes that shift offshore after our existing trading hours.
Brokerages will need to enhance their infrastructure to support these extended hours, which includes investing in technology, personnel costs for products and technology, operations, and risk management, among other aspects.
How do you see Sebi’s new proposal for having an ASBA-like facility for secondary market trading? It will benefit traders and investors but how will brokers get impacted?
The approval of an ASBA-like facility for investor trading in the secondary market by SEBI’s board is a positive development. Under the proposed framework, stock brokers can choose between directly settling brokerage with UPI clients or utilizing the Clearing Corporation’s facility to deduct the standard rate of brokerage from clients’ UPI blocks. It’s crucial to emphasize that the ASBA facility is optional for both investors and brokers.
Introducing the ASBA facility for secondary market trading could simplify the process of buying and selling shares for investors, potentially resulting in increased competition among brokers. Brokerages will need to invest in personnel and processes since they will initially have to manage separate procedures for ASBA and non-ASBA clients. Nevertheless, by adapting to these changes and offering value-added services to investors, brokerages can maintain their competitive advantage.
Going forward, what are plans for Upstox? What are the key focus areas?
Our investment in the IPL and ICC platforms over the past few years has significantly benefited our brand, contributing to over 30% revenue growth in FY23 compared to FY22. As mentioned earlier, our company is also cash flow positive. As a well-capitalized firm, we have no need for additional fundraising and are committed to continuously expanding our product suite to better serve our customers.
While we are a family of over 1 crore Upstox customers, there is still much ground to cover, as less than 5% of Indians invest in equities, compared to 50% of Americans and 20-30% in other countries. With inflationary returns hovering around 6%, it’s clear that every day you don’t invest, you’re losing money.
In 2024, we aim to make significant progress towards our mission by rapidly growing our top line while continuing to generate healthy cash flow.
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