The current phase of a slowdown in the broking industry is likely to be short-lived, believes Dinesh Thakkar, founder of broking firm Angel One. In an interview with Moneycontrol, he stated that tighter regulations, despite the short-term pain for brokers, would help grow the market in the long run as it would strengthen the trust of clients in brokers.
On being asked if the glory days of broking are behind, and that tighter regulations will keep shrinking the profitability of brokers, Thakkar said that the market is illogical.
"Sometimes they give a high price for something that may never materialise, and at other times they will not anticipate something that can develop down the line. The market moves on perception not reality. But when it comes face-to-face with reality, valuations will be reassigned. Right now, the feeling seems to be that growth will be lower and so valuations are low. Let’s not forget, broking stocks were valued at 40 and 50 times (forward earnings) in 2008. When the market saw growth rates can’t sustain, valuations corrected to 14-15 times. Future perceptions of growth have rarely proved right," he explained.
Talking about the broking industry slowdown, he noted that pointed out that this situation is different from the past for two reasons: regulations and access to information are much better today, and there have been major changes in terms of demographics and socioeconomics.
"Urban and tier 1 are 11 percent of the population, tier 2 would be 5-6 percent, and the rest tier-2 plus cities. The last segment got activated in a big way in 2020 because the quality digital infrastructure was available, and the penetration of smartphones was high. The majority of the people who have entered the market recently are youngsters, who are social media savvy. In the past, much of the participation was from urban and tier-1 cities. Whenever there was a crash, these investors would withdraw and it would take 2-3 years for new investors to take their place Secondly the government has found a way to manage inflation better than in the case in the past. In fact, digital players like us are not seeing any slowdown. We are getting 3.5-4 lakh new accounts every month. 90 percent of them are from tier-2 and beyond. These are markets that were not available in the past," he told Moneycontrol.
