The rise & rise of new-age stock brokers; and other top tech, startup stories this week (2024)

Hi, this is Pratik Bhakta in Bengaluru.

A crop of tech-first stockbrokers is not only leading from the front in adding new customers, they’re also generating strong revenues and profits— a theme we at ETtech have been capturing through our in-depth coverage of this segment. These stock-broking platforms, which have diversified beyond stock trading to position themselves as full-fledged financial services firms, have left behind the traditional players in terms of user sign-ups.

Also read | New-age brokers ride on futures option to the bank

This week, Mumbai-based broking startup Upstox said it has generated free cash flow of around Rs 200 crore as of end-December 2023. In the last financial year, the Tiger Global-backed startup posted a profit of Rs 25 crore at a consolidated level on revenues of Rs 1,000 crore.

Also read | Stock broking startups Groww, Upstox eye lending, payments to expand revenue base

Fiscal 2023 turned out to be a strong year for the other two major brokers, Groww and Zerodha. While Groww reported total revenues of Rs 1,294 crore in FY23, a jump of 252% on year, its core broking vertical generated a net profit of Rs 73 crore.

Zerodha, one of the most valuable startups in the country, continued its profit streak. In FY23, the company reported revenue of Rs 6,875 crore and a net profit of Rs 2,900 crore.

Also read | Fintechs add 1.3 million new mutual fund SIPs in November, almost half of overall industry

Mumbai-based AngelOne, which has been on a journey to turn tech-first and shed its traditional physical business, reported a net profit of Rs 260 crore in the December quarter of the current fiscal, up 14% from Rs 228 crore last year.

Another discount broker, 5Paisa, reported Rs 100 crore in total revenue in the December quarter, up 20% on year. Its net profit stood at Rs 15 crore compared to Rs 11 crore a year back.

These discount brokers are emerging as attractive destinations for new-generation customers. The tech platform, the ease of use, and the do-it-yourself approach appeals to young investors who are entering the market now.

Also Read | Full-service brokers see exodus of clients to discount players

Similar trends are being observed in the mutual fund space.

In terms of new systematic investment plans being opened, startups like Groww, Zerodha, Paytm Money, ETMoney are all leading the game. Most of these platforms offer direct mutual funds, which as a sector is becoming attractive over regular mutual funds. ET Money is a part of Times Internet, which also runs ETtech.

Also Read | SIP account additions hit all-time high in December 2023

Talent churn

Interestingly, talent is moving in the direction of these new-age tech brokers, too. This week, ET wrote about the top leadership at Kotak Mahindra Bank’s wealth management platform Cherry had quit to join rival AngelOne.

From a macro view these early trends are good signs for the broader fintech industry. It shows that tech-first financial services companies stand to reap the benefits of the overall digitisation of the economy. However, a section of the industry is worried around the long-term sustainability of this model.

“Trading is a business where you can end up losing your entire fortune. The question is: are these new entrants into the stock markets prepared to tide over that?” said a senior industry executive.

Also read | How fintechs got their fingers in every pie

Also, most of these startups make around 80% to 85% of their overall revenue from futures and options traders, a very risky segment within the stock-broking community. Once the market slows down, this segment might be hit very badly, and they might turn away from stock trading for good. The question is: how will these tech platforms survive in that case?

Take a look at the financials of Cherry and AngelOne. While Kotak Cherry has around 9.7 lakh active traders AngelOne has around 46 lakh active clients. But in terms of financials they are comparable.

In the September quarter, AngelOne reported a net profit of Rs 314 crore on a total revenue of Rs 1,049 crore. Kotak Securities, the trading arm of the bank, posted a net profit of Rs 324 crore on a total income of Rs 962 crore.

If the traditional players can keep their high quality customers sticky and generate sufficient revenues and net profits, the tech-led firms may not find it easy to maintain their edge.

Fintech Updates

Kotak Cherry senior executives leaving to join rival firm Angel One: At least four top executives of Kotak Cherry, the digital wealth management app run by Kotak Mahindra Bank, including its chief executive Srikanth Subramanian, are set to jump ship to join rival broking firm Angel One. Besides Subramanian, Kotak Wealth Management's investment products head Dharmendra Jain and senior product heads Shobhit Mathur and Mayank Rathi are all moving out, the sources said.

RBI issues draft framework for fintech self-regulatory bodies: The Reserve Bank of India has issued a draft framework for self-regulatory organisations focused on the fintech sector (SRO-FT). The main idea behind the guidelines is to empower the fledgling sector to function and innovate responsibly even in the absence of formal regulations.

Paytm Q3 loss narrows to Rs 222 crore; firm to focus on large-ticket loans: One 97 Communications, the company that operates digital payments firm Paytm, on Friday said its fiscal third-quarter net loss shrank 43% from a year earlier to Rs 221.7 crore. Revenue from operations for the December quarter increased 38% to Rs 2,850.5 crore.

SoftBank fully exits Policybazaar parent with $650 million returns: Japanese technology investor SoftBank has completed its exit from PB Fintech, the parent of insurance marketplace Policybazaar, said people aware of the matter, marking another step in the ongoing divestment of its portfolio of listed companies.

Insurtech startups make hay as embedded insurance gets the spotlight: A rush among consumer-facing companies to offer bundled insurance packages along with their products and services is opening fresh business opportunities for digital insurance infrastructure startups.

Meanwhile, new-age insurance companies Digit and Acko have cut down on expenses, trying to secure profits, in line with the larger startup ecosystem which is looking to save costs and turn profitable.

Top Stories This Week

Ecommerce clicks dip in December, trigger growth concerns: Ecommerce sites had seen a significant dip in sales volume in December immediately after the end of the festive season, triggering growth concerns among online marketplaces and brands, according to industry executives.

Upgrad in talks for $100 million to close US edtech Udacity buy: Ronnie Screwvala-led Upgrad Education is in advanced stages of acquiring US online education firm Udacity. People briefed on the matter told ET that the Mumbai-based edtech is also talking to investors to raise up to $100 million, of which about 80% will be used for financing the deal.

Free Fire Max beats BGMI to bag India’s favourite esports tag: Free Fire Max, a ‘battle royale’ game published by Singapore-based Garena, has overtaken BattleGrounds Mobile India (BGMI) as the most popular esports title in India, said third party data and gaming industry executives.

KKR closes in on $300 million investment in BookMyShow: KKR is in advanced negotiations to invest Rs 2,087-2,505 crore for a significant minority stake in Reliance Industries Ltd-backed BookMyShow (BMS) through a secondary share sale by existing financial investors, said people with knowledge of the matter.

Udaan valuation dives to $1.8 billion in down round: Business-to-business (B2B) ecommerce company Udaan’s valuation has fallen by nearly half to around $1.8 billion in a down round, marking one of the most precipitous drops for a startup that has raised over $1 billion, people aware of the matter said.

Dream11 posts higher profit, revenue; auditor flags risk from GST demand: Fantasy sports platform Dream11 reported a 32% increase in net profit and a 66% jump in operating revenue for fiscal 2023, show its regulatory filings. The company, which is facing a tax demand for more than Rs 28,000 crore from the GST authorities, posted a profit of Rs 188 crore.

Insurers negotiate with hackers as cyber claims rise: Private insurers such as HDFC Ergo General Insurance and Bajaj Allianz General Insurance are going the extra mile and negotiating with cyber attackers to tackle claims owing to ransomware demands, as India becomes one of the most targeted countries for cyberattacks globally.

Foxconn, HCL group sign pact for chip packaging facility in India: Foxconn has formed a partnership with HCL Group for semiconductor assembly and testing, which is the second attempt by the Taiwanese company to enter the chip-making space in India. The joint venture is in “advanced-level talks” with Tamil Nadu and Telangana to set up its unit.

Local SaaS firms under the thumb to retool for artificial intelligence: At least half a dozen investors ET spoke to said it will be crucial for early-stage software companies to showcase how they are leveraging AI in their products to attract new investments in 2024.

ETtech Deals Digest: Startup funding down 80% to $144 million this week: Investments in Indian startups dropped about 80% on year this week, totalling $143.9 million across 26 different deals. Companies, across seed, early and late stages, had raised about $722 million in 30 rounds in the period from January 13 to 19 last year, as per data from Tracxn.