This is a big change for Broking Industry - Exchange Transaction charges are set to become flat.
What this means?
May stock trading platforms offer services for Free, ie. Zero Brokerage or minimal monthly charges - which is possible because Brokers make transaction charges from Exchanges as revenues. With this becoming flat - there are no revenue streams left for trading platforms, which essentially means it is impossible to run zero / low fees broking in India anymore.
This also impacts lots of large brokers (Dhan is very small compared to these) where they are set to lose a huge chunk of revenue - upto 15% to 20% in an already super competitive and capital intensive business.
Appreciate your post on broking industry and your perspective in running a securities brokerage business.
Ignore my illiteracy or lack of information but is Dhan/Moneylicious Securities Pvt Ltd/Raise Financial Services profitable or at least in the path of turning profitable in near future(not expecting exact numbers like a public listed company but a bare yes or no truth would suffice if you donât want to reveal any industry level secrets )?
What are the different intrasectoral industries (within fintech) youâre taking a look at for making things bigger going forward? If not looking to any other stuff what stuff are you laser focussed on currently to scale things up which you feel might bring in additional set of customers to Dhan? (You could skip second question if you donât like to answer and reveal anything much)
I have saw your competetors throw in some rough numbers once in a while regarding how profitable theyâre. Estimating from Dhan user base of 5.63 lakh vs your top competetors user base who have 18x ~ 12.5x of Dhan user base could we expect Dhan to be somewhat profitable with so less user base? Or does number of active users of platform doesnât make any difference in a brokerage firm being profitable or not (certain set of users always will be part of core revenue and revenue from other set of users would be discretionary in a sense and flactuating a lot. is this observable even in your company)?
What according to you would be primary limitation in brokerage business to scale it up in much quicker fashion? Is it just tech that makes all the difference between one firm and other or is there any other edge that makes a difference (according to you).
Has the number of people whoâs working on the different products / platforms offered by Dhan have remained flat since beginning or has there been exponential rise in those numbers? Iâm asking this because i have heard from one of the other brokerage firms founder who claimed that there tech is basically built by 35-40 people overall. While it couldâve worked out for them at one point iâm also feeling it to be an issue/factor for them while tackling variety of problems theyâre facing from different set of users on there offerings. Are you of the view that at least bringing in few additional members might solve the issue sometimes or are you of the view that adding additional members doesnât make any changes?
Edit (additional question): Do you think a lot of small players will undergo consolidation or get absorbed by bigger players like it happened in telecom industry or even in US brokerage industry Charles Schwab tookover TDAmeritrade in recent times?
@ValueInvestor0 Dhan is now Cash positive. P&L statement could reflect otherwise but capital allocation is a management decision.
Just for your peace of mind, Dhan is a cash positive business and expenses growth trend seems to have flatten off, however employee expenses are trending higher.
All data can be sourced from Tofler or Company360 or you can pay your local CA to get you the latest numbers (if you are that mesmerised with Dhanâs financials).
@ValueInvestor0 To keep it simpler, our aim at Dhan is to keep our customers happy. If we are able to do that, I believe we will be in good shape.
Once again, the post is not about Dhan. As i mentioned, we are new and latest entrants, much smaller compared to other large players who have been operating for decades.
For us, Customer Experience and their happiness matters most. To do that, we invest a lot and will continue to do so as we scale and built with them.
@PravinJ And I must tell you that you are doing fine in all aspects. Just the aspects of wealth management such as MF pledge needs to be implemented then this is a full service brokerage.
@PravinJ thanks for the discussion here. I have some doubts as a new-bee and would love to have your perspective. All the questions are in general and not how you are thinking for Dhan
What does it mean for small retailers like us? Do we expect the market in general to move towards % based pricing or maybe double the pricing (say Rs 40/trade). It is extension of the the point where you mentioned that a lot of big players may loose their revenue overnight.
From an outsider perspective, it seems like discount or zero brokerage was helping the retailers and this move may move a lot of traders out of business. If you had to guess, what would be the reason for SEBI to do this?
Is there any silver lining in this potential decision which people like me are not able to see?
Market wonât stop and people would recover soon, if this happens. How do you see that the market in general would evolve with action like this? What are the potential scenarios that can play out.
hi @sv28 My views, well are my views - but the stock trading market is super super competitive and there are times that due to competition certain things may or may not take place. That said, new players with deeper pockets and resources like expected to join and scale soon - Jio and PhonePe.
I am assuming that for options trading, I would expect the prices to be same and see many platforms that are not charging, to start charging. Would it double to 40 INR, nope but maybe 25 INR will be more likely if prices go up). Running a brokerage business for free is extremely difficult because of the risk involved and higher working capital requirements. Today, very few brokers do not charge for Delivery, Account Opening, AMC, Platform Fees and adding funds (we are one of them), this may change if there are pushing needs.
Zero brokerage was only for delivery trades. Few platforms offer zero brokerage on F&O as well, but the other way to look at this is - collectively all platforms offering zero brokerage on trading do not contribute to more than 0.5% of the market, may be lesser. Traders prefer reliability, speed, execution chops over zero brokerage. That said, regulators have been talking about massive volumes in F&O, I personally feel the shift happened because leverage on stocks was reduced. Earlier broking platforms offered 20-40X leverage on stocks, which is now reduced to 5X.
In long term, everything goes well. I prefer to see it that way.
Anything that needs to be done to favour the big players will be done, as has been the trend since 2014.
Develop your own prop strategies, make your yeild go up with disciplined capital allocation and risk management, and it would not matter, if you pay âš50 per trade.
Remember this: The system is against small players and beat it accordingly.
Since 2015, when we went 0 brokerage on equity delivery, we have subsidised equity investments with the revenue from the F&O trading activity. This structure could now potentially change. As a business, we may have to introduce a brokerage fee for equity delivery investments, which is currently free, or/and increase F&O brokerage.
Iâm interested to hear your thoughts on how this might impact Dhan.
The circular impacts all industry players, including us. We are still a very small player when compared to the rest, specially larger ones who have now mentioned about increasing F&O brokerages + adding brokerage on delivery.
Being smaller in size and also newer, means our impact will be less; but does not mean no impact. We will spend some time on assessing this and keep our users posted if we decide to do any changes.
Hello @PravinJ A small user feedback, given the tech you provide, I personally am happy to pay âš30 per executed order on all trades including delivery. Even âš40 works fine for me when it comes to Dhan.
P.S. - Fellow users, please donât hate on me, itâs my personal thought process. I feel Dhan is a good value for money brokerage.
Hi @thisisbanerjee Thanks for saying that, however we still have to deliberate on changes in brokerage or pricing.
From day 1, we have always maintained that Dhan will never compete on prices, offer and match what the industry standards are - but in that same price we will offer immense value (which in our case is all Dhan platforms, reasonable MTF prices, no fees on payments, lower fees on pledge, no AMC, no joining fees, etc).
Now the industry is changing its stance, so we have lot more thinking to do.
@PravinJ I also think from attracting more traders, you could also double down your focus on investors and investor specific offering.
Zerodha had a tingling about this for years and now they will attract even more investors on their platform given the analytics they are providing and building.
Biggest gainers would be the % fee delivery full service brokerages such as ICICI. They will atleast arrest the slide in market share.
I guess they are profitable now. Dhan parent company Raise has raised INR 176 Cr funding at an valuation of INR 700 Cr in year 2022. Now its 2024 and may be the companyâs valuation crosses above INR 1500 Cr. Its just a speculation but I think they are profitable now based on their past fundings.
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