According to NSE, the number of active retail investors in stock markets rose 160% – from around 30 Lakh in January 2020 to 78 Lakh by March 2023
As per Zinnov, over 55% of users of investment tech apps are millennials, which suggests that this demographic has a greater risk appetite for trading
Inc42 spoke to Sidhavelayutham M, founder of discount brokerage platform Alice Blue to understand how investment techs are empowering novice retail investors
In 2023, the oldest millennials turn 40, while the oldest Gen Zers have already entered their mid-twenties. This dynamic demographic represents those who witnessed technology’s rise and those who practically grew up with it. And both have also adeptly leveraged emerging technology to improve their lives.
With an active presence in the Indian workforce, those in the 23-45 age group continuously seek ways to enhance their financial well-being.
Factors such as rising discretionary spending, increased financial literacy and the Covid-19 pandemic have encouraged younger Indians to overcome their aversion to risk and explore alternative income sources. Interestingly, NSE (National Stock Exchange) data shows that the number of active retail investors in stock markets rose from around 30 Lakh in January 2020 to 78 Lakh by March 2023 — clocking a 160% increase in two years.
However, it is not the growing risk appetite alone that has contributed to the rise of retail investors in capital markets. The transition from traditional broker models and agents to online platforms and smartphone apps has made trading simple, user-friendly, and accessible to a large user base.
“The trading culture is going through a fast-paced evolutionary process. The temptation to participate in the Indian growth story has not only made the investors trade in stocks but also trade in derivatives,” says Sidhavelayutham M, founder, & CEO of investment tech platform Alice Blue.
Sidhavelayutham M, who holds a degree in business administration, started discount broking platform Alice Blue in Tamil Nadu’s Erode 16 years ago and moved its headquarters to Bengaluru in 2017, at a time when investment tech was growing as a niche category within fintech.
Since 2006, the company has scaled its physical footprint across 20 Indian cities and has served more than 4 Lakh investors.
In 2017, the startup launched its trading app ANT(Analyse and Trade) to improve the user experience and simplify online trading across various segments, including equity, currency, and commodity. The app also enables users to trade in F&O (Futures and Options) and invest in initial public offerings (IPOs) and mutual funds.
For context, a discount broker platform allows individuals to buy and sell various financial instruments including stocks, bonds, and exchange-traded funds (ETFs), at a reduced cost compared to traditional full-service brokerage firms. Such platforms offer online trading tools, including real-time market data, charts, and analysis tools to help users make informed investment decisions.
As opposed to the industry standard brokerage fee of INR 20, Alice Blue claims to charge INR 15 from its retail investors for intraday and F&O trading, besides offering free equity, IPO, and mutual funds investments.
Despite the macroeconomic headwinds and stock market crashes in the past year and a half, Alice Blue said that it witnessed an 18% YoY growth in trade volumes in 2022. This signals the retail investors’ confidence in the stock market and other investment assets.
Fostering Trust, Creating Awareness Around Retail Investment
Sidhavelayutham M entered the investment tech space even before the global financial crisis of 2007-08. Although that crisis was primarily caused by a downturn in the US housing market and a lack of regulatory oversight, its repercussions were felt in India as well.
The 2008 financial crisis demonstrated that reducing brokerage fees isn’t sufficient to earn the trust of investors, a lesson that India’s investment tech platforms have taken to heart. Beyond the allure of big bucks and exhilarating bull runs, there lies a harsh reality — without adequate knowledge and carefully calculated risks, no substantial returns can be achieved.
Even the past year has seen investors suffer big losses on their public market bets as the usually-reliable tech stocks crashed in a major way.
Recognising the importance of awareness and investor protection, investment techs have also added an educational component to their platforms. These aim to help individuals make well-informed investment decisions, something Alice Blue has also added in recent years.
For instance two of India’s prominent discount brokerage startups and Alice Blue’s notable rivals – Zerodha and Upstox — offer a wealth of resources including articles, videos, and glossaries focussed on stock markets, mutual funds, and more.
Commenting on Alice Blue’s educational mobile app ANTIQ, Sidhavelayutham M said, “We offer a wide range of webinars and seminars to ensure that young investors have the option of learning the nuances of the markets before investing. We always urge them to exercise caution and learn the ropes of the markets before plunging in.”
Educating investors is one thing, but converting potential leads into active retail investors is another.
According to Sidhavelayutham M, digital marketing has served the company well in reaching its target audience. Having physical offices across the country also helps build brand awareness and deepen the reach, he added.
However, nothing has worked as well as word-of-mouth marketing. Like its counterparts, Alice Blue has implemented a referral programme that allows users to receive a percentage of cashback on the brokerage fees they pay to the company.
By harnessing the power of referrals, investment tech platforms can not only acquire new users without overspending on marketing but also gain trust among them rapidly. Plus, the rewards programme is an incentive for existing users to stay loyal to the platform, since it reduces the fees even further.
This strategy works particularly well outside the metros that thrive on community networks and the trust inherent in one’s social circle.
In fact, a report by international research firm YouGov showed that millennials and those residing in Tier 2 cities are most likely to increase their investment in mutual funds. According to its June 2022 report, 26% of millennials increased investing activity in mutual funds as compared to Gen Z (23%) and Gen X (23%).
Likewise, people from Tier 2 cities (30%) increased their mutual fund investments more than Tier 1 and 3 cities.
“We have been noticing a lot of people from smaller towns and even villages coming to our platform. The Covid lockdown was of course a big contributing factor towards growing the investor base from far and distant towns,” adds the founder.
Enhancing The Trading Experience
It’s no surprise that novice investors are attracted to digital investment platforms due to the convenience and affordability they offer, plus these platforms do a lot of the heavy lifting in terms of account creation and payouts of the returns in a timely manner.
Unlike full-service brokers, who usually impose a brokerage fee of 0.25%-0.75% on every transaction, discount brokers charge a minimal amount which is definitely more appealing for a first-time or novice investor.
However, in order to effectively compete with traditional counterparts, discount brokerages must consistently enhance their offerings to align with SEBI (Stock Exchange Board of India) regulations, while also maintaining a bug-free, seamless trading experience and a high level of user security.
Alice Blue has NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) licenses.
Besides this, the company aims to constantly innovate and upgrade its tech stack, which is a key competitive moat in the investment tech space.
“We place paramount importance on hiring and retaining top-tier tech talent. Our team consists of industry leading professionals specialising in software development, data analysis, cybersecurity, and AI,” says Sidhavelayutham M, adding that customisable and conversational trading bots and AI-driven platforms are key to simplifying trading for beginners.
The platform also offers robust trading which enables traders (who manage large trade volumes on behalf of investors) to integrate third party applications that provide additional utilities. This helps them track multiple orders placed on a daily basis and enables seamless access to historic & real-time market data, trade execution and account management functionalities.
Platforms such as Alice Blue and its ilk also use secure servers, networks, and storage systems, while employing strong encryption protocols such as SSL (Secure Sockets Layer) and TLS (Transport Layer Security) to protect user data.
Besides, it has support for two-factor authentication as an additional layer of security, requiring users to provide a secondary verification factor (such as an OTP) along with their login credentials. In addition, Alice Blue also employs fingerprint login for enhanced security and is currently exploring blockchain technology to decentralize data, making it more secure and harder to tamper with.
What Are Millennials Looking For?
According to Inc42’s estimates, the investment tech industry is experiencing rapid growth, and its market size is expected to surge from $9.2 Bn in 2022 to $74 Bn by 2030, growing at a CAGR of 30%.
This growth can largely be attributed to millennials joining the retail investor pool. A report by management consulting firm Zinnov indicates that over 55% of investment app users belong to this demographic.
Given the dominance of millennials in the user base, it is unsurprising that investment tech platforms are targeting this segment. However, it is worth noting that a substantial portion of millennials exhibit a preference for low to medium-risk investments and more than 44% of all retail investors opt for systematic investment plans (SIPs), as per the report.
But Sidhavelayutham M believes this trend is changing. “A lot of our users have been steadily investing in the IPO bouquet. We are also seeing a lot of excitement around forthcoming IPOs from the likes of LIC & Anuras, Craftsman, EaseMyTrip & Suryoday,” he says.
Goldman Sachs analysis says new IPOs may add up to $400 Bn of market cap by 2024, making India the fifth largest market by capitalisation by 2024. The expected entry of new-age tech companies in the public markets is also exciting as these are the companies that young Indians have seen grow and flourish within their lifetimes.
Sidhavelayutham M adds that investment tech platforms have the potential to bring on-the-fence hesitant Indians to the retail investor fray as these platforms remove the entry barriers. Plus as fears of a volatile market and long-term recession act as headwinds, the education component is vital to retain new and experienced investors and create trust in the system.
Retail investor participation is often seen as an analog for the economic development of a country, and by enabling easy participation, platforms such as Alice Blue are accelerating India’s economy.