Our financial dependence on broking is now far lower: ICICI Securities CEO

Retail investor behaviour so far has been mixed in terms of market activity. Indirect investment through mutual funds has improved significantly, said Vijay Chandok, MD & CEO, ICICI Securities

The recent banking crisis in the US and Europe, coupled with rate-hike fears by global central banks, has dented market sentiment over the past few days. Vijay Chandok, managing director and chief executive officer, ICICI Securities, in conversation with Puneet Wadhwa, says the recent turn of events could turn central bankers dovish. He believes this may revive global equity market sentiment to some extent. Edited excerpts:

Do you expect global central banks to go slow on rate hikes?

The US Federal Reserve (Fed) raised interest rate by 25 basis points (bps) and signalled that the banking system turmoil may end its rate-hike campaign sooner than anticipated. The priority for the Fed seems to have shifted to financial stability and may possibly take precedence over elevated inflation. The debt market, thus, has taken a sanguine view of the Fed pausing or cutting rates sooner than indicated by it.

Have retail investors become risk-averse?

Retail investor behaviour so far has been mixed in terms of market activity. Indirect investment through mutual funds has improved significantly, with higher inflows in the past two months when markets were trending lower. However, a lacklustre broader market and margin requirement has resulted in a decline in the proportion of retail volume in the cash segment in recent months. However, this may change quickly with stabilisation in current external uncertainties. Volume in the derivatives segment continues to inch up northwards; however, the retail segment proportion has declined in recent months.

Can global markets enter the bear phase in 2023?

The concern about over-elevated inflation and its likely impact on global growth has resulted in weak capital markets globally. Whether or not markets will enter the bear phase is anybody’s guess. But, we believe that the recent turn of events could turn central bankers dovish. This, in turn, may revive global equity market sentiment to an extent.

At what point will domestic institutions and retail investors panic and sell?

While there has been foreign institutional investor (FII) selling over the past two years, the outflows were not India-specific. The recent market weakness has been triggered by global cues. However, from an FII perspective, the net selling has been relatively low in two months, compared to other emerging markets. For FIIs to come back significantly, we need some degree of global stability. At this juncture, money is flowing into safer assets.

Will the next negative surprise for markets come from lower-than-expected corporate earnings?

Amid the recent banking crisis, one of the key risks for the market is the hard landing of the US economy. This may impact export-oriented sectors and India Inc’s corporate earnings. Currently weakness in equity markets — both globally and in India — seems to be a function of the same uncertainty, as markets await interest-rate trajectory and quantum of slowdown ahead.

Will retail investors still prefer systematic investment plans (SIPs) rather than direct investments in markets?

The investment via SIPs is holding up well and steadily increasing. As far as investments in direct equity are concerned, the post-pandemic euphoria is no longer there since the cash average daily turnover is down nearly 25 per cent year-on-year and at pre-pandemic levels.

Another major reason for this decline is the underperformance of mid- and small-caps. There might be some short-term pain, but we believe India’s medium- and long-term story is still intact, considering the under-penetration in Indian markets and increasing financialisation.

How are broking volumes shaping up for the industry as a whole, and ICICI Securities, in particular?

For us, broking as a percentage of revenue has reduced from about 55 per cent in 2018-19 (FY19) to about 35 per cent now. Our financial dependence on broking is far lower than ever before.

Speaking of broking volumes, volume in the cash segment peaked in April 2022 and is trending downwards — from Rs 73,320 crore in April 2022 to Rs 53,803 crore in February 2023 — impacted by subdued market and higher margin requirements.

One must note that in the midst of strong retail participation, the churn had increased, leading to softness in cash volumes. However, the derivatives segment, posting more than a tenfold increase in volume, continues to witness an unabated rise in turnover, led by options. In both these segments — cash and derivatives — we have gained market share in the past year.

How is the wealth management business coming along?

Our wealth customer count — customers with assets under management (AUM) of over Rs 1 crore — has gone up from 32,000 in FY19 to nearly 70,000 now. Their AUM with us has increased from about Rs 1 trillion to nearly Rs 3 trillion during the same period.

Currently, we are acquiring 2,500-4,000 such customers every quarter. Our revenue from the wealth segment has increased from about Rs 250 crore for the full year to Rs 250 crore a quarter now.