PremiumIn a world where goods and services move fairly easily across borders, it seemed rather restrictive that an Indian investor couldn’t buy shares of companies like Tesla and Amazon. So Bengaluru-based startup Stockal, registered in New York, has created a platform to make it easier for Indians to buy shares of companies in the US—even if it’s meant that they had to jump through a few hoops.
Stockal’s founders, Sitashwa Srivastava and Vinay Bharathwaj, decided to draw on Reserve Bank of India’s Liberalized Remittance Scheme (LRS), which allows individuals to send $250,000 a year abroad. The scheme is used most for foreign travel or college fees. It could also be used for investing in shares of foreign companies, but few do so because it’s too cumbersome. For starters, LRS requires a form and a declaration letter, which most banks don’t have online.
Stockal is talking to banks to digitize this process. Currently, it uses a courier to collect documents from a prospective investor, submit them at a specified branch, and enable remittance to a US brokerage account. That money can then be used on the platform to trade in US stocks.
DriveWealth, an innovative provider of brokerage services, is Stockal’s partner in the US. Since its inception in 2012, New York-based DriveWealth has developed a suite of application programming interfaces (APIs) for its partners in other countries to enable seamless investment in US stocks. One of its innovations is fractional trading. For example, if the $1,883 price of an Amazon share is too much for a retail investor from India, she could invest $100 for a fraction of the share.
Stockal has a mix of subscription and trading charges. For an annual subscription of ₹3,999, it costs $1.99 per trade, but for a higher subscription fee of ₹13,999 a year, it costs one cent a share for a trade. There’s also a basic plan without subscription for someone who wants to try it out.
Another cost is in converting rupees to dollars while remitting money into the US trading account. So Stockal has negotiated with banks to club all investments from the platform to apply lower forex rates for bulk remittance.
The platform has a data science team crunching financial and economic information to provide research support. “There’s a lot more news-based investing happening now. For example, the S&P 500 jumped twice recently," says Ashita Agrawal, head of engineering at Stockal. “Analytics can suggest the required action when such events happen, depending on investing patterns, whether you’re a short-term trader or a long-term investor."
INCEPTION IN NEW YORK
Sitashwa Srivastava and Vinay Bharathwaj started Stockal as a stock advisory firm in New York in 2016. A lot of alternative data beyond fundamentals had come into investing, but were mostly used by hedge funds and professional wealth managers. “Zero commission" brokerage apps targeted at millennials also arrived on the scene.
“They were providing a trading platform without research, tips and news to make investment decisions. So we thought our product would be a complementary fit to discount brokers like Robinhood," says Bharathwaj, who had earlier co-founded a $300-million hedge fund in New York after quitting Citibank.
The Stockal advisory product got “decent" traction, says Bharathwaj, but monetizing it proved to be a challenge. While they were pushing this, however, they started getting enquiries from peers back home in India who wanted to diversify their portfolios. “We were the guys who knew how to invest in US stocks. Wealth managers were calling us and asking ‘how can you help us do this’," he recalls.
This seemed like the bigger opportunity and Stockal pivoted in mid-2018 to target Indian investors. The new product was in beta mode through most of 2019 before launching in September. A month later, it got a boost when HDFC Securities introduced a GlobalInvesting channel for its customers, which is powered by Stockal via APIs. Stockal is also embedded in investment app Cube Wealth and is in talks with others for partnerships.
The B2B2C (business to business to consumer) add-on will help Stockal reach more investors. The platform model appeals to Srivastava, who quit Cognizant to start a crowdsourcing site for marketing services, called Jade Magnet, which became a Harvard Business Case Study. Stockal built its platform with angel funding and is now finalizing its series A round to scale up and expand.
MORE INVESTMENT ABROAD
“People invest directly through Stockal but we’re happy to distribute via partners as well because we’re essentially creating a bridge for people to invest anywhere," says Srivastava. “There is active demand in this space. Last year, $13.5 billion went out through LRS, mostly on college fees and travel. That mark was crossed in September itself in this financial year. It’s a 20X increase in five years."
Investing in foreign stocks is another option for people who’re earning and saving more and increasingly sending money abroad. And money earned abroad will mostly return home, so it shouldn’t be a problem for regulators.
So far, about 4,000 investors have opened US trading accounts via Stockal, with an average remittance of $4,000. Those who invested in Tesla would be a happy bunch because its share price has doubled since October. US stock indices are at record levels in anticipation of a US-China trade deal. The sentiment may well turn, but it shows the value of investing in multiple markets.
Stockal has also started serving investors in the Middle East, and will be launching soon in Indonesia, Thailand and Malaysia. It plans to add the UK, Germany and Hong Kong to its platform.
It’s not the only channel for cross-border investing. Axis and ICICI have partnered with Danish investment bank Saxo Bank to enable such investments. A couple of US brokerages have partnered Indian brokers.
Stockal’s approach of partnering with multiple entities and easing the retail investor’s experience is its differentiator. Just as Google Pay and Paytm got mass adoption, whereas bank apps using Unified Payments Interface (UPI) remained in limbo, the startup hopes to connect with customers.
“These products are complicated with compliance and tax implications. So it’s not enough to plug in a new trading platform and expect a bank to push the product. We come in as partners, train relationship managers, and educate the market," says Bharathwaj.
“Most people don’t invest even if they have the money because it’s complicated. The user experience is messed up. Only a platform can solve this because you need multiple elements to come together," says Srivastava.
Malavika Velayanikal is a contributing editor with Mint. She tweets @vmalu
