How Bharat got hooked to stock trading on apps

A few months into trading, Sinha, 43, switched to a mobile phone platform on which he does most of his investments these days, including transactions in stock derivatives.

“Earlier, when I wanted to trade, I had to open the website by keying in the login ID and password and then place an order," Sinha said. “Now, all I need to do is to either key in the PIN or just use the fingerprint sensor. It is much easier."

People like Sinha aren’t the only converts. And stock trading on an app is no longer merely an urban fad. Take Chetan Patel, who lives in the industrial town of Ankleshwar in Gujarat. Home to more than 2,000 industrial plants that make chemicals, paints and pesticide, Ankleshwar is a transport and logistics hub that is located just 14 kilometres from Bharuch, one of the oldest seaports in western India.

Patel who owns a transport business in the heart of the industrial hub has dabbled in the stock markets before, but never managed to devote much time to investing because his work entailed constant travel. “Because of the nature of my business, I am always on the go and hence was not able to actively trade earlier. I had to call my stock market relationship manager (RM) to put in trades," he said.

But the convulsions of 2020 have ended up changing many things. On the BSE, for instance, mobile trading accounted for a significant 20.89% of the total turnover in April 2021. The figure was less than 6% in April 2019.

Some of these new app-based traders are urbanites like Sumit Sinha, but many belong to smaller tier-2 and tier-3 towns, for whom avenues to access the markets happen to be far more limited.

“These days, I am using a mobile app and have become an active trader," Patel said. “Although my travel schedule is still the same, I don’t have to call my RM now."

Whether this phenomenon sustains and what might be the effect of the pandemic’s spread in smaller towns during the second surge remains to be seen. But, for now, India has its own emerging crop of Robinhood investors—small-time investors, often from beyond the metros, who recently acquired enough strength in numbers in the US to shake up established financial institutions by collectively trading on select stocks.

New investment culture

For Sinha, Patel and a growing number of other investors, mobile trading apps, which now offer a more robust ecosystem and security features than they did in their early days, have made it easier and safer to trade in stocks worth millions of rupees.

They have also helped expand the equity culture to smaller cities, from where the number of transactions has risen dramatically, according to securities firms.

“Almost 80% of our unique traded clients are from tier-2 and tier-3 cities and they contribute around 70% of the total turnover," said Sandeep Bhardwaj, chief executive officer-retail, IIFL Securities Ltd. Overall, mobile trading has grown 76% in the past one year, Bhardwaj said.

In the current calendar year, Motilal Oswal Financial Services said almost 62% of the app-driven trading turnover has originated from tier-2 and tier-3 cities.

This is significant because historically, the bulk of the trading on the BSE and the National Stock Exchange (NSE) has originated primarily from the big cities—Mumbai, Delhi, Kolkata and Ahmedabad. But now, mobile trading has put cities like Coimbatore, Kanpur, Ludhiana, Indore, Jaipur, Kochi, Lucknow, Medak and Pune on the map. Since 2020, a sizeable portion of the trading turnover has started to originate from these locations.

According to 5Paisa Capital Ltd, the share of mobile trading from beyond the top 20 cities is steadily increasing and makes up 27% of the transactions that are performed on its app.

This shift comes in the backdrop of past complaints by the capital markets regulator that market participants haven’t made sufficient efforts to expand the equity investment culture beyond the top cities. The Securities and Exchange Board of India (SEBI) allowed mobile trading in India in 2010.

At Zerodha Broking Limited, which is the country’s largest brokerage in terms of active clients, around 75% of the orders placed on its platform originates from a mobile phone. When Zerodha started offering a mobile app way back in 2014, only 10% of the orders were generated via the app.

With an eye on this new emerging crop of investors who only trade via mobile apps, most full-service brokerages have also started offering discounted services or free trading options via their in-house apps. “We doubled our mobile adoption in FY21," said Deepak Singh, chief business officer, Reliance Securities Ltd.

Motilal Oswal Financial Services, meanwhile, has experienced a 170% and 108% growth in mobile transaction volumes and clients in the last one year, with 55% of its clients currently trading through the mobile platform, said Arun Chaudhry, head of digital strategy at the securities firm’s online business unit.

A derivatives boost

Trading strategies have also changed slightly. Brokers have seen a spike in derivatives trading through the mobile platform. Derivatives are contracts that derive their value from the performance of an underlying stock. Thus, these instruments are used to speculate on the future price movements of an underlying asset, without having to purchase the actual asset itself, in the hope of booking a profit.

“On an overall basis, the growth in derivative volumes through the mobile app route has increased by 1.7 times over last year," said Motilal Oswal’s Chaudhry, adding that derivatives have become the most popular segment in volume terms.

Similarly, 5Paisa recorded an increase of 80% in the derivative segment in terms of turnover and 69% in the cash segment in transactions done using mobile phones.

Within the derivatives space, options contracts outnumber futures contracts by a huge margin and the trend is similar in the mobile segment as well, brokerage executives said.

“Apps do not need to be refreshed as they get auto-refreshed, which was not the case with the website. This is especially useful when trading in derivatives," said Bengaluru-based Sinha, who has tried his luck with options contracts.

The surge in derivatives transactions can also be attributed to an increasing number of active traders and high net worth individuals (HNIs) using the mobile platform. These two categories of investors dabble actively in futures and options contracts.

“There is no material difference in the features available on a mobile app and a web platform, so active traders can choose to use the mobile app as well. Since 75% of our orders come from the app, it would be safe to say that they (active traders/HNIs) indeed do use the app to trade," said a spokesperson for Zerodha.

Another interesting trend is the growing popularity of trading apps among woman investors, with some brokerages reporting a two-fold rise in the number of female investors, although the base is smaller compared to male investors.

IIFL, for instance, saw the turnover generated by its woman clients rise around 98% year-on-year in March, while the turnover for men increased around 72%. In the overall mobile trading segment, women still contribute only 24% of total turnover.

With the growing acceptance of mobile trading platforms, it’s no surprise that some popular apps have posted impressive download numbers.

Trading apps of brokerages like Zerodha, Angel Broking Ltd, 5Paisa and Upstox have all scored over five million downloads each on the Android platform. ICICI Direct, HDFC Securities Ltd, Axis Securities Ltd, Sharekhan Ltd and Kotak Securities Ltd have also been downloaded over a million times each.

In the case of the iOS platform, Zerodha’s Kite is the number one in the finance category among free apps. Upstox Pro, HDFC Securities, ICICI Direct and Kotak Stock Trader also feature among the top 20 free apps. Interestingly, some of the trading apps have more downloads to their credit than the apps of leading banks, which have a far wider reach.

As a result, for brokerages, apps—and technology in a broader sense—have become the focus area. A big priority is to constantly improve features and security measures.

Artificial intelligence-driven trading and social trading is also starting to get popular among the millennials and the so-called zillennials (or Generation Z) and brokerages need to focus on technology and app offerings, said Prakarsh Gagdani, chief executive officer of 5Paisa.

Safety and security

To be sure, technology comes with its own set of concerns and mobile apps are no different. One of the biggest concerns is the level of safety and security—any form of data leak or hack could have serious consequences.

Trading apps have a lot of information related to an investor’s portfolio, buy/sell transaction history, and are also linked to the person’s bank account—making strong encryption and security sacrosanct.

Upstox, the second-largest brokerage in terms of the number of clients and backed by marquee investors like Tiger Global LP and Ratan Tata, recently suffered a data breach that allegedly exposed details like clients’ Aadhaar, PAN and bank account details, and also their mobile phone numbers and email addresses.

“We have upgraded our security systems manifold recently on the recommendations of a global cyber-security firm. We brought in the expertise of this globally renowned firm after we received emails claiming unauthorized access into our database," Upstox said in a statement on 11 April.

“These claims suggested that some contact data and KYC details may have been compromised from third-party data-warehouse systems. We would like to assure you that your funds and securities are protected and remain safe," it added.

A few glitches have surfaced in the trading apps of almost all brokerages. To be fair to the brokerages though, the downtime is generally limited. But investors have begun to vociferously complain that such glitches lead to financial losses as they are not able to key in trades when they need to.

The growing power of social media, particularly Twitter, has given investors a platform to voice their concerns and the micro blogging site is often replete with investor complaints. Ultimately, the clout of this new generation of market participants is only set to grow. And the ripples caused by this pandemic-fuelled influx may fundamentally change how the brokerages and markets function in the long run.

Ashish Rukhaiyar is a Mumbai-based journalist covering capital markets.