We wish to pivot to a monetary market: ICICI Securities CMD

What has led to the dip in market participation by retail buyers?

The story of the present market atmosphere was triggered in October 2021. Nifty 50 Index was at its all-time excessive and the primary indicators of market fade-out started over the subsequent couple of months. This was in a method pushed by the alerts despatched by the US Fed that it might be taking a look at quantitative tightening to deal with inflation within the US. Stock markets began drifting downwards quickly after. And with each passing week, the markets tumbled because the commentary round quantitative tightening grew to become stronger. and this pattern continued until the tip of January 2022 quarter.

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And final yr in February, when Russia invaded Ukraine, the market wanted no additional excuses; it collapsed. The collapse was fairly sharp globally, much less so for India. The US benchmark index plummeted 33-35% from its peak, whereas the Indian benchmark indices corrected by 14-15%.

So, the scenario for Indian markets was nonetheless significantly better and their rebound was additionally speedy over the subsequent four-five months. Meanwhile, amid this volatility within the markets, a way of uncertainty had crept in amongst retail buyers. During this era, they discovered it very tough to handle the turbulence. This dampened their enthusiasm they usually began to slowly scale back their participation available in the market.

To ensure, we did see markets rebound and even transcend their earlier all-time highs, however the cloth of this revival has been tenuous. It is probably to do with the truth that whereas no person is questioning the medium-term outlook, the short-to-medium-term outlook (over the subsequent few quarters) continues to be fraught with uncertainty. And due to that, the retail investor has been fairly nervous. In the meantime, you will have additionally began to see time correction.

But shouldn’t participation enhance with the rebound?

The bounce again that occurred was extra within the headline indices like Nifty 50. But the mid cap and non-Nifty kind of corporations continued to wrestle, that are the segments the place retail exercise tends to be.

While the market confirmed obvious power, the undertone was weak. And that pattern has continued. We have additionally had sufficient uncertainty on the capital fundraise facet. Even the celebrated four-five fintech IPOs (preliminary public choices) that got here within the second half of 2021, suffered put up their itemizing and this once more dented the arrogance of buyers. During this whole interval, the IPO market has continued to be fairly tepid to weak. The solely huge IPO that occurred throughout this era was that of Life Insurance Corporation of India (LIC). Just a few different IPOs occurred, however you could possibly distinctively see the scale of the IPOs changing into a lot smaller. Earlier, ₹1,500 crore-plus IPO was thought of a small-to-medium-sized IPO. Today, a big IPO is taken into account to be round simply ₹1,000 crore.

On the opposite hand, resulting from intervention of Sebi (market regulator Securities and Exchange Board of India) over the previous couple of years, there may be little or no leverage available in the market. High leverage means to satisfy your obligations, your positions would get minimize. So, it’s no extra a notional loss, however an actual loss. And that may be very painful and that causes panic. However, this time round there isn’t a panic resulting from low leverage So, you don’t fear about chopping your place or realizing your loss; you possibly can maintain. That is why this time round, there’s a decline in market participation, however not a collapse.

So, with rates of interest rising, are you seeing any shift in direction of bonds?

To some extent, mutual funds proceed to stay good recipients of systematic investments. The HNIs (excessive internet value people) cash, or good cash as they name it, might be drifting in direction of fastened earnings. If you have a look at mass affluent-retail as a composite, cash has gravitated in direction of mutual funds’ systematic funding plans (SIPs), in a mixture of fairness and hybrid funds. There can be allocation to financial institution deposits as a result of deposit charges have additionally inched up.

What has been your technique to take care of the decline in market participation?

Our agency’s technique has been to pivot from being an e-broker to a wealth tech firm. It is about making equities simply one of many merchandise we provide and never the entire thing. This has manifested itself already between 2019 and 2022, once we began doing this pivot.

In 2019, our whole income was round ₹1,700 crore. Of this, nearer to 60% was from fairness broking. In 2022, the general income rose to ₹3,400 crore, and the contribution of broking has come right down to lower than 40%. So, on a doubling of income, the fairness broking share happening from 55-60% to 40%, clearly represents the pivot to wealth tech.

What do you imply by wealth tech?

We had articulated three pivots. First was that we’ll pivot to open structure. This implies that once we purchase a buyer, you don’t must be an ICICI Bank buyer. In a method, we thought it was pathbreaking as a result of 90-91% of the legal responsibility market (financial savings account, present account, deposits) doesn’t belong to ICICI Bank. ICICI Bank has 8-9% share, whereas different banks account for the remaining market share. And we weren’t even inquisitive about that 90-91% of market. So, this pivot opened that complete phase of marketplace for us.

The second pivot was broadening of the product basket past equities and the less funding merchandise we used to do, to an entire vary of merchandise. So, from fundamental deposits, the entire fastened earnings portfolio was strengthened. The complete wealth-related merchandise, merchandise on PMS (portfolio administration providers), alternate options; we elevated that basket. We launched our personal PMS fund.

We additionally introduced in companions by way of RIA (registered funding advisor) route, by providing curated portfolios by way of our ‘masters of street’ providing. So, we tied up with 8-10 specialists or well-regarded fund managers they usually provide their curated portfolios by way of this. We name it one-click baskets.

Under the sequence of one-click baskets, now we have retail portfolios and now we have additionally launched the higher-end model of it, which we name premium portfolios, that are from ICICI Direct.

We have expanded our partnerships in distribution of life insurance coverage, medical insurance, and common insurance coverage merchandise. So, from being solely an ICICI Prudential Life and ICICI Lombard distributor, now we have onboarded completely different insurers. HDFC Ergo and HDFC Life have been onboarded, and so have Star Health, Care Health, and many others. So, now we have broad-based product basket, once more going with the entire open structure.

Third, now we have broad-based mortgage distribution. We realized that now we have had an extended historical past of retaining clients . So, mortgage was a pure adjacency for us. We have launched enterprise loans, house loans, loans towards property (LAP), loans towards shares (LAS), loans towards mutual funds, and, extra lately, bank cards as effectively. Soon, we are going to give you private loans. So, the entire basket of mortgage merchandise has been systematically broad primarily based.

How do you’re employed with banks on the loans enterprise?

We don’t carry the credit score danger. We merely change into the mortgage finder. So, it’s a distribution mannequin. At the back-end, now we have a plethora of banks. We usually are not restricted to ICICI Bank. Even HDFC house loans can be found on our platform, Bank of Baroda house loans can be found. We at the moment are tying up with Bajaj Finance, Tata Capital, Cholamandalam Finance.

So, the concept of ICICI Direct is to pivot to a wealth tech and ultimately a monetary market. So, the dependence on equities turns into much less and fewer. It is a really aware pivot now we have finished. So, consider us two-three-year down the road, as a mixture of LoanBazaar, PolicyBazaar and a wealth tech, all underneath one umbrella. That is the course by which we might wish to transfer.

So, what’s your income cut up proper now, other than fairness broking?

So, it’s a mixture of some issues. The distribution-linked income is 20%. Then now we have one other 20%-odd coming from what we name as quasi-equity merchandise. We have modified the way in which by which our broking is priced. We launched subscription-based plans. It isn’t linked with broking since you subscribe to a plan. It is rather like a Netflix subscription and also you get some advantages akin to entry to analysis, liquidity and low-cost margin buying and selling funding (MTF), which is one other income stream.

So, there’s a basket of barely 20%-plus, which is belonging to non-broking fairness merchandise, which was like 3% or so. It is in a method is linked to fairness however the correlation is way decrease in comparison with, say, direct broking. It is due to this pivot that now we have been in a position to maintain or develop our fairness income regardless of the decline in market participation.

So, 40% is from fairness broking income. And one other 40% is cut up within the method described above. About 5-7% can be from our treasury operations. And the remaining 15% might be institutional fairness.

Institutional fairness is once more linked to markets..

So right here additionally, now we have cut up the 15% into two baskets. One is the 7%-basket, one is the 8%-basket. The 7% basket is institutional fairness broking, the place now we have elevated the circulation enterprise. So, if you find yourself catering to numerous mutual funds and overseas institutional buyers, there’s a core allocation that they maintain providing you with as a result of they must additionally deploy cash in markets, purchase and promote shares, and so forth. So, whereas it’s linked with markets, it’s not cyclical. We have seen it being extra steady. It has a direct correlation with mutual fund flows and stuff. And then you will have remaining 8%, which is IPOs. Rather than cyclical, I name it episodic. Even in an hostile cycle, you instantly have a really huge IPO for the quarter, and you’ll instantly see a spike. So, it’s extra episodic than cyclical.

Our endeavour is to cut back dependance on IPOs and improve the dependence on QIP (certified institutional placement). And it has been a aware effort within the final three years to extend our presence, notably within the BFSI (banking, monetary providers and insurance coverage) house.

So, what now we have seen is that if now we have a foothold with 40-50 prime BFSI corporations of the nation, somebody or the opposite is elevating cash sooner or later or the opposite. Whether it’s a massive financial institution, small financial institution, small finance financial institution of NBFCs (non-bank monetary corporations), somebody is available in the market. So, you will have protection of 40-50 such corporations, and sometimes these corporations would no less than take three funding bankers for his or her issuances. So, now we have elevated our analysis protection footprint. We have a really excessive market share on this house, greater than 70% on this BFSI house.

So, to what extent do you anticipate to diversify your income streams?

Three years down the road, we might hope as an alternative of getting one thick and 3-4 skinny line objects, to have broadly 4-5 nearly equally thick line objects. So, our try can be mutual fund distribution turns into a thicker line merchandise than it’s. Non-mutual fund distribution line merchandise, which is insurance coverage, loans, wealth merchandise, bonds, and many others. all of them collectively change into one other thick line merchandise.

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