Investment firm Tiger Global
has picked up 31.1 per cent stake in Upstox, a discount brokerage, run by RKSV Securities India, whose shareholders include Ratan Tata.
Internet Fund V Pte Ltd, a Tiger Global
vehicle, invested Rs 178.47 crore to acquire 5,07,884 preference shares in the firm. Ratan Naval Tata held 1.33 per cent stake in the firm at the beginning of the year. Kalaari Capital Partners III held 15.21 per cent stake, according to company filings reviewed by Business Standard. GVK Davix Technologies held 2.54 per cent stake.
A discount brokerage offers low-cost execution of share trades, usually charging a flat fee. Brokerages have otherwise traditionally charged a percentage of the transaction value as commission. The entry of discount brokerages has reduced their income. A study by Upstox
indicated that its clients had saved Rs 400 crore in brokerage over a one-year period for 250,000 investors who used its platform. RKSV Securities India had 99,546 active clients, according to the last available figures on the National Stock Exchange website. This makes it one of the larger brokerages in the country. The firm entered the retail brokerage segment in 2012.
The money raised is to be used for expansion and establishing a nationwide presence of the firm, according to documents.
Rating agency Icra, in a recent note, said that the brokerage industry’s revenues had moderated in FY19 amid increased competition, including from discount brokerages, as well as market volatility.
“While the volatility in the market is expected to encourage trading turnover, the recent correction in valuations, coupled with a cautious investor stance, would have a bearing on industry revenues,” the December 2018 report stated. The rating agency predicted revenues between Rs 19,500-20,500 crore for the brokerage industry in FY19. Growth was projected to moderate to between 5-10 per cent for the year after growing at over 30 per cent in the previous year.
Full service brokerages may turn to margin funding and distribution of financial services to help boost income. They are said to be under pressure because of the increasing share of derivatives in the overall trading activity on stock exchanges.
Derivatives are instruments which allow investors to hedge their market position or to take a bet on price direction, and their trades are less lucrative for brokerages. Their share rose to 96 per cent in the first half of FY19, according to the report. It was at around 93 per cent in FY17.
A spokesperson from RKSV said that the valuation is significantly higher than implied by the headline number in Tiger's investment because of other transactions which have also been undertaken as part of the deal. He declined to comment on specifics.