Bajaj Finserv turns up heat in broking

Bajaj Finserve’s fully owned subsidiary Bajaj Financial Securities (BFSL) joining the zero-brokerage bandwagon — for an annual subscription fee of ~500 — has intensified competition in the broking space.

Besides zero brokerage, it is offering multi-platform trading, call, and trade facility and leverage of up to 20x. While aggressive pricing isn’t a new phenomenon in the ~18,000crore domestic broking space, Bajaj Finserv’s huge success in the consumer finance business and deep pockets have sparked competitive fears among incumbents.

Discount brokers such as Zerodha and 5Paisa.com already have ultra-cost pricing models with zero brokerage, and flat fees of as low as ~10 for intra-day trades in the cash and derivatives space.

Market players said BFSL is yet to aggressively market its offerings.

“It remains to be seen what additional services they provide, besides zero brokerage. If their offerings gain attraction, other players, especially in the full-service space, will be forced to alter their charges and prevent migration of clients,” said an official with a leading brokerage.

Despite the advent of zero-brokerage, bank-backed brokerages such as ICICI Securities and HDFC Securities have managed to hold their turf without aggressively slashing their fees.

“Slashing brokerage charges will only make a dent in the customer base of discount brokerages,” said Dhiraj Relli, CEO of HDFC Securities. Relli added that brokerages owned by banks had additional advantages over other players.

“When you deal with standalone brokers, you have to transfer funds to their account, and call back your funds if you do not invest. Otherwise, funds keep lying idle with them. In bank brokerage, you do not need to transfer money to the broker ’s account. The amount is debited from your account only when the order is executed, whereas in the case of non-bank brokers, you have to essentially park the money in the broker ’s account,” said Relli.

Players in the zero-broking space say the technology and quality of offerings will be a differentiator.

“Zerodha is ahead of the competition because it offers a superior product. The market is divided between active traders and passive traders. And active traders look more at the quality of the product, rather than the pricing,” said Nitin Kamath, founder and CEO of Zerodha.

Kamath added that reducing charges may not cut ice with active traders, given that they end up spending more in securities transaction tax (STT) than brokerage.

Competition in the broking space is intensifying at a time when the industry is facing growth challenges on account of volatile market conditions and rising popularity of mutual funds over direct investing.

A year ago, ICRA had forecast muted growth for the broking industry. For the ongoing fiscal year, revenues were forecast to grow 5-10 per cent to ~200 billion. In FY18, the industry’s revenues surged 30 per cent to ~180 billion.

“Slashing brokerage charges will only make a dent in the customer base of discount brokerages” DHIRAJ RELLI CEO, HDFC Securities

“Zerodha is ahead of the competition as it offers a superior product...active traders look more at the quality of the product” NITIN KAMATH Founder & CEO, Zerodha