HDFC Sec Institutional Research published a report on discount brokers in India. The report has a lot of insights about the Indian broking industry. Here’s the link to the full report and some highlights:
With the growing customer base of discount brokers and the announced entry plan of PayTM Money, the low fixed rate broking model is poised to grow further. The largest discount brokers in the US- Schwab, Fidelity, TD Ameritrade, and Pershing already control ~62% of the broking market. We believe that over the next few years as the disruption picks pace incumbents will be forced to reduce broking charges even for the cash product.
We believe that discount brokers will increasingly look to target the 40+ age segment. Additionally, we foresee that capturing new clients for incumbents has increasingly become more difficult. This over a period of time may constrain growth.
In the last four years Zerodha has been the largest disruptor in equity broking space and now has a 15% volume market share with the highest ~0.9mn active customers.
5 PAISA the second largest discount broker is at ~2% cash volumes and 1.3% F&O volumes market share and ~100k active customers.
While the overall market is growing and the potential may seem very large the total number of direct equity investors is still quite low. Our conversations with industry professionals peg this number to be ~15mn. The immediate growth area is the mutual fund investor who has not yet invested in direct equities i.e. ~15mn. A smaller market means higher compulsion to keep acquiring new customers and also increased competition for existing customers.