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India’s stock trading apps bloom amidst unprecedented IPO scene

Written by Rama Chandran Published on     5 mins read

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Only 10% of the country’s middle-income families invest in the markets, speaking to a huge gap to be tapped for India’s stock trading apps.

As India’s stock market indices, from Sensex to Nifty 50, scale one peak after another since earlier this year in continuation of the bullish market sentiment from the past few years after the country’s capital markets resurfaced from COVID-19, more and more novice investors are being drawn to its buoyant secondary market: individuals. And since most of these investors have little to no experience in dealing with capital markets, a slew of startups are taking it upon themselves to launch services and platforms to educate the new generation of Indian individual investors on the rudiments of stock trading.

Sensex and Nifty 40 growth over the past years. Source: Google Finance.

Educating novice investors

Kochi-based Fundfolio is one such service.

The company was founded by Shafique Samsudeen and Sooraj Elamana, two National Institutes of Technology alumnus who both started their careers in the city of Bengaluru after graduating. Samsudeen was working at the furniture and appliances rental platform Rentomojo while Elamana was with Zolo Stays, a short rental service that rivals the likes of Oyo and Airbnb.

Taking note of India’s growing capital markets, the duo quit their jobs to co-found Fundfolio last year as an educational platform for beginning investors, offering online class modules on capital markets. Fundfolio just received a seed funding round of INR 92 lakhs (USD 125,000) two months ago from YCombinator, a renowned US-based startup incubator.

Fundfolio’s flagship service Marketfeed features 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 signed up around 10,000 retail investors.

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

Before the arrival of internet-based trading platforms, stock investing was cumbersome in India. Retail investors had to be present at the stock exchange. Then the trading companies came into existence, where a dealing desk was waiting for the investor’s call to buy and sell stocks. In the past decade, the arrival of trading apps has revolutionized the scene by letting almost anyone 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 trading through mobile phones more than a decade ago. But stock trading apps have only become prosperous in the past few years, thanks to a combination of mobile proliferation and market flourishing.

BSE Sensex, the benchmark index of the Bombay Stock Exchange that tracks 30 large and actively traded companies listed on the BSE, breached 60,000 0n September 24, 2021, for the first time. It has surged 134% in 18 months. The last 10,000 point rally came in just eight months. One reason for this surge is that many new retail investors have joined the stock market post-COVID. The percentage of individual investors increased from 33% to 45% over the last five years. In turn, a rosy market sentiment resulting from the influx of the first few batches of retail investors is attracting 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 city in India’s southern Karnataka State. They pooled together money to establish Zerodha in 2010. At the time of its founding, it was the first to introduce a flat fee pricing model—charging a maximum of INR 20 per trade—and helped traders save up to 90% of brokerage fees. The pricing strategy helped it stand out from a group of competitors and win over investors. Zerodha is now valued at USD 2 billion, with a net profit of USD 130 million last year. Today, it’s the largest retail brokerage firm in India, serving over 600,000 users.

Driven by an IPO boom

There is another driving force behind India’s current market heyday—the unprecedented IPO scene this year.

According to an EY report, India witnessed companies mopping up a whopping USD 9.7 billion through initial share sales in the first nine months of 2021. That’s the highest amount in two decades. Overall, 72 IPOs hit the market during this period. India witnessed 31 IPOs that garnered a total of over  USD 5 billion.

On a separate note, India’s maturing startup ecosystem is sprouting successful IPOs that have also piqued the interests of retail investors. They have begun a trend by investing in a company for its value and future. It all started with Zomato, and over the next 12-18 months, more notable names will make their debut on IPOs, such as PolicyBazaar, Paytm, Bajaj Energy MobiKwik, and Ixigo. According to Venture Intelligence, Indian startups have raised over USD 25 billion in the first nine months of 2021, the last USD 5 billion in just over two months. Startups have raised USD 25.7 billion across 774 deals—the amount nearly doubles 2019’s USD 13 billion. 2021 has also seen 31 unicorns created in India so far.

While more than 150 million people use digital payment apps each month, only about 20 million of them invest in stocks or other investment vehicles. The huge gap speaks to considerable room for the likes of Fundfolio and Zerodha to grow.

This is why India is witnessing a flow of funds into trading apps. On August 18, 2021, Amazon made its first investment in India’s wealth management sector when it participated in a USD 40 million funding round of six-year-old startup Smallcase, founded by Vasant Kamath. Amazon announced a USD 250 million corpus as part of its Sambhav Venture Fund for Indian small and medium enterprises last year.

With their deeper pockets, some of the more established trading apps, such as Zerodha, started investing in and supporting smaller startups to expand their services and better position themselves in competition. For instance, Zerodha helped a startup called Smallcase launch a stock trading operation in 2016. Now, Smallcase boasts over 3.2 million users. The volumes transacted in Smallcase have more than doubled to INR 12,500 crore (USD 1.7 billion) in the same period, the company’s founder Vasant Kamath told KrASIA.

Stock trading apps are giving Indians further reach than just investing in domestic companies. Many Indians are now trading US stocks to diversify their portfolio. India’s central bank, the Reserve Bank of India’s Liberalized Remittance Scheme, allows individuals to send USD 250,000 a year abroad.

Around 100 million middle-income Indian families typically save 30% of their income, and only one-tenth of these families invest in capital markets. This implies significant potential for a new crop of stock trading apps in the country. With over 7,000 companies listed on the South Asian nation’s domestic exchanges and more tech IPOs expected next year, the likes of Zerodha are scrambling to woo the country’s new generation of novice stock traders that could use a little help in making investment decisions.

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