HDFC Securities says capturing new clients has increasingly become more difficult, constraining growth.
In such, a scenario cost competitiveness will become a key. The note said keeping costs low would be vital for survival if discount brokers continue to grow. Zerodha is operating on fixed operating costs of Rs 1.2 billion and total operating costs of Rs 2 billion in FY18. In comparison, ICICI Securities had total costs of Rs 9.4 billion in FY18.
The note says discount brokers will have to invest in new apps. Zerodha recently on-boarded Small case (index creating and investing platform), Sensibull (option strategy trading platform) and Streak (algo-creation, backtesting platform). Additionally, Zerodha’s new product plans include de-construction of ULIP and selling term insurance and direct mutual funds separately, launching investing platform for US equities, margin funding and direct retail investing in Indian government bonds, the note said.
The note says new entrants would be able to disrupt the market if the technology is correctly deployed. “Given that companies have seen Zerodha be immensely profitable, we expect new entrants to follow suit. Platforms such as Sensibull, Streak and Smallcase enhance user experience and may prove to be attractive add on feature for a certain set of customers. Traditional retail brokers are adapting and also integrating such applications on to their platforms.”