INTRODUCTION:
Stock Broking industry as we observe today has been impacted by Covid19 just like any other industry, brokerage houses across the country had to change their operational functioning and the lockdown forced the brokers to shed their hesitancy to opt for digital channels of providing services to traders. But this change in operations didn’t affect the business of the brokers rather the pandemic and the operational change has had a positive impact on the business of brokerage houses as they saw a huge spurt in the new customer acquisition and high trade volumes from traders across the country. In this article, we will try to see and analyze what this situation means for the brokerage houses across the country? What factors are driving the new signups in the market? If this impact is short lived or the new traders here to stay in the market and if they are what can brokers make out of this situation?
ANALYSIS:
In the past 2 months if anything that is common among the businesses across the country is COVID19 has impacted them and each and every one of them had to change their way of operating their business due to the unpredictable scenario throughout the world.
Stock broking industry has also seen some major changes in operating their businesses due to Covid19, as trading terminals have moved from dealing rooms to homes, brokers are completing transactions from their homes for the first time in over a century. This has forced traders to rework entire protocols, starting from working hours to workspaces, security protocols to investor outreach, and storing information to meeting compliance requirements. One such example is ICICI securities where almost 95% of their transactions are concluded digitally and the entire onboarding process has gone digital.
So there arises the question wherein how can this operational changes and huge volatility in the market be claimed as a boon for the Stock broking industry, the thing is Brokerage Houses are seeing record increases in new accounts and trading activity, with individual investors diving into the market in an attempt to seize on this year’s erratic stock swings. India has added more than a million new equity traders in the last two months, about 1.2 million new Indian accounts were opened with a securities depository in March and April, up from a combined 900,000 in the first two months of the year.
The trend can be specifically seen with the discount brokers in the industry, wherein at a time when traditional brokers are struggling to continue their services due to nationwide lockdown, the current crisis seems to be a blessing in disguise for discount brokers. For Example, discount brokers like Zerodha have seen monthly account openings double since February, with a 20% increase in first-time investors, 5paisa saw more than one lakh new customers acquisition in March, Upstox saw a 55% increase in the number of orders in march and is witnessing an unprecedented increase in demand for opening new accounts.
The reasons for this can be the transformation of broker services in the form of complete digital onboarding process, arming financial advisers with tablet computers to extending the horizon of price targets, smooth online transaction processes offered by discount brokers, low brokerage charges enticing new customers or with risk assets sinking to multi-year low the entry of new base of Retail investors in the market.
But will this rally for discount brokers last longer, given the uncertainty in the market, and once the impact of the lockdown being fully apparent in the corporate earnings the new traders will shy away. That is not to say that in the short-run some of the retail investors will be lucky enough to earn some money but there will be many more who will walk away with nothing to show.Covid19 has placed many workers in the position wherein they have a lot of time with superfast internet connectivity and almost zero commissions to place their trades. These traders are looking to make a quick buck out of the market ignoring the broader picture and such investors will soon realize that making money in the market is not that easy. In summary, these uninformed and inexperienced traders are buying equities while throwing caution to the wind by ignoring the risks out in the market.
So if the new investors are not here to stay how can the brokers manage to entice these customers and retain them, the first thing is brokers need to align their systems and operations; recent events wherein the country’s largest discount broker saw technical glitches 2 times in a month leads to confusion and distrust among the traders to execute their trades. The second thing is, these aren’t normal market conditions and the brokerage houses need to play an active role in communicating with their clients in informing them about the high liquidity, high Volatility conditions, reminding their clients to adjust their strategies to maintain the adequate margins in their accounts. Offering different products so as to increase the likelihood to provide the clients with the next best possible measure to manage the volatility.
CONCLUSION:
The change in market conditions due to the pandemic may have brought in the retail investors or the new traders to the market but the operational resiliency on the part of the Brokerage houses in easing the trade execution process, digital onboarding process and low commissions have acted as a catalyst in bringing in the clients and trade volumes for them.
The Covid19 impact on the Stock Broking industry may be called as a boon for the industry but is this impact a boon or a Short-lived dream for the brokerage houses looking at the bigger picture we can say that the stay of the new entrants and retail investors depend on how the markets will perform in future and how the Brokerage houses manage these clients and retain them. A lot needs to be done on the part of Brokerage houses to cash in this opportunity and reap the fruits of it.
COVID 19 - a boon for Stock Broker?