Indian stock trading apps flourish amid unprecedented IPO scene

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While Indian stock indices, from Sensex to Nifty 50, climb to highs after attracted by its buoyant secondary market: individuals. And since most of these investors have little or no experience dealing with capital markets, a large number of startups take it upon themselves to launch services and platforms to educate the new generation of Indian individual investors on the basics of stock trading.

Sensex and Nifty 40 have grown over the past few years. Source: Google Finance.

Train new investors

Fundfolio, based in Kochi, is one such service.

The company was founded by Shafique Samsudeen and Sooraj Elamana, two National Institutes of Technology alumni who both started their careers in the city of Bengaluru after graduating. Samsudeen worked for the Rentomojo furniture and appliance rental platform while Elamana was with Zolo Stays, a short-term rental service that rivals Oyo and Airbnb.

Taking note of the growing capital markets in India, the duo quit their jobs to co-found Fundfolio last year as an educational platform for newbie investors, offering online course modules in Capital Markets. Fundfolio just received initial funding of 92 lakhs INR (125,000 USD) two months ago from YCombinator, a renowned American startup incubator.

Fundfolio’s flagship service, Marketfeed, offers a live feed of market news to help its users stay informed. It even hired SEBI registered trading experts to advise its users on investments. The service has now recruited around 10,000 individual investors.

Marketfeed integrates with third-party trading platforms such as Zerodha to allow its users to trade stocks directly from its app. Samsudeen, Founder and CEO of Fundfolio, said KrASIA that his company is planning an upgrade that incorporates its in-house developed business function over the next two months.

Before the advent of internet trading platforms, investing in stocks was tedious in India. Individual investors had to be present on the stock exchange. Then, trading companies sprang up, where a trading desk waited for the investor’s call to buy and sell stocks. Over the past decade, the arrival of trading apps has revolutionized the scene by allowing almost anyone to invest with just a few clicks on their mobile devices.

The Securities and Exchange Board of India (SEBI), India’s capital market regulator, first sanctioned transactions via mobile phones more than a decade ago. But stock trading apps have only flourished in recent years, thanks to a combination of mobile proliferation and market boom.

BSE Sensex, the Bombay Stock Exchange’s benchmark index that tracks 30 large, actively traded companies listed on BSE, topped 60,000 on September 24, 2021, for the first time. It has jumped 134% in 18 months. The last 10,000 point rally took place in just eight months. One of the reasons for this increase is that many new retail investors have joined the stock market after COVID. The percentage of individual investors has increased from 33% to 45% over the past five years. In turn, a pink market sentiment resulting from the influx of the first batches of retail investors attracts more investors.

In addition to Fundfolio, several other Indian startups are eyeing the same market, including Zerodha and Upstox, both of which are popular among first-time investors.

Zerodha was founded by brothers Nitin and Nikhil Kamath from Shimoga, a town in the southern state of Karnataka in India. They pooled money to create Zerodha in 2010. When it was founded, it was the first to introduce a flat-rate pricing model – charging a maximum of INR 20 per transaction – and helped merchants save money. up to 90% on brokerage fees. The pricing strategy has allowed it to stand out from a group of competitors and to attract investors. Zerodha is now valued at $ 2 billion, with a net profit of $ 130 million last year. Today, it is the largest retail brokerage firm in India, serving over 600,000 users.

Driven by an IPO boom

There is another driving force behind the current heyday of the Indian market: the unprecedented IPO scene this year.

According to an EY report, India has seen companies mop up US $ 9.7 billion from initial share sales in the first nine months of 2021. This is the highest amount in two decades. A total of 72 IPOs were launched on the market during this period. India has witnessed 31 IPOs that brought in a total of over $ 5 billion.

On a separate note, India’s mature startup ecosystem is sprouting successful IPOs that have also captured the interest of retail investors. They started a trend by investing in a business for its value and its future. It all started with Zomato, and over the next 12-18 months more notable names will debut in IPOs, such as PolicyBazaar, Paytm, Bajaj Energy MobiKwik, and Ixigo. According to Venture Intelligence, Indian startups have raised more than $ 25 billion in the first nine months of 2021, the last $ 5 billion in just over two months. Startups have raised $ 25.7 billion in 774 deals, almost double the $ 13 billion in 2019. 2021 has also seen 31 unicorns created in India so far.

While more than 150 million people use digital payment apps each month, only around 20 million invest in stocks or other investment vehicles. The huge spread shows considerable room for growth for Fundfolio and Zerodha.

This is why India is witnessing a flow of funds to the trading applications. On August 18, 2021, Amazon made its first investment in the wealth management industry in India by participating in a US $ 40 million funding round from the start-up Smallcase, created six years ago and founded by Vasant Kamath. Amazon announced a $ 250 million corpus last year as part of its Sambhav Venture Fund for Indian Small and Medium Businesses.

With their pockets deeper, some of the more established trading apps, such as Zerodha, have started investing and supporting smaller startups to expand their services and better position themselves against the competition. For example, Zerodha helped a startup called Smallcase launch a stock trading operation in 2016. Today, Smallcase has over 3.2 million users. Volumes processed in Smallcase more than doubled to INR 12,500 crore (USD 1.7 billion) during the same period, said company founder Vasant Kamath. KrASIA.

Stock trading apps give Indians a wider reach than just investing in domestic companies. Many Indians are now trading in US stocks to diversify their portfolios. India’s central bank, the Reserve Bank of India’s liberalized transfer program, allows individuals to send $ 250,000 a year abroad.

Around 100 million middle-income Indian families typically save 30% of their income, and only a tenth of these families invest in capital markets. This implies significant potential for a new generation of equity trading applications in the country. With more than 7,000 companies listed on the South Asian country’s national stock exchanges and more tech IPOs expected next year, Zerodha is scrambling to woo the country’s new generation of novice stock traders who may have need a little help making investment decisions.


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