Margin trade funding (MTF) – where brokers lend money to traders to buy more shares and earn interest income while keeping the financed shares as collateral – is dominated by bank-backed stockbrokers such as ICICI Securities and Kotak Securities.
Bengaluru-based Zerodha, the country’s second largest stockbroker, is working to launch the product soon while rival Groww has recently gone live with this feature. Fyers is working on the beta testing stage but wants to grow this book “very carefully” even as early movers Mstock, Angel One and 5Paisa are generating significant revenue by growing their MTF books.
Early movers
Mirae Asset-backed Mstock has already built a loan book of around Rs 2,000 crore on MTF and has a target to double this book in the next one year.The Mumbai-based zero brokerage platform, which had launched the MTF product in July 2022, also launched a margin pledge product around two months back.
“We have a target of achieving a book size of Rs 2,000 crore for the margin pledge product by March 2026,” said Arun Chaudhry, chief business officer of Mstock.Also Read | How Sebi action will impact profits of discount stock broking firms like Zerodha and Groww
Mumbai-based Angel One said in the first quarter of FY25, it had a client funding book of Rs 3,409 crore. This includes both margin funding offered to clients and loans given against securities. A year back, in the June quarter of the last fiscal, this book was at Rs 1,139 crore.
Responding to analyst questions on the MTF growth, Devender Kumar, chief revenue officer, direct business, at Angel One, had said the product experience has been enhanced and new features have been added, which have helped more customers avail this product. “Obviously, the funds coming in has allowed us to expand our base of users…which has allowed large customers or large ticket sizes also to come in,” he said.
Angel One raised Rs 1,500 crore in equity funding through an institutional placement in April this year.
Winds of change
Discount brokers have realised that many revenue generating opportunities for them will shut down so they need to invest in expanding the product base.
While the likes of Groww are venturing into consumer lending, Zerodha wants to focus on the core broking business. Even Mstock’s Chaudhry said he wants to focus on the broking business and build more credit opportunities within the trading ecosystem.
MTF is a product that depends on the net worth of the broker and also the profile of customers.
Also Read | Zerodha eyes greater synergies between trading, wealth apps
For new-age brokers, MTF was never the first choice because they could not compete with banks on the cost of funds, given lenders have access to cheap capital. But some things have changed.
“It has now been illustrated that distribution and convenience is equally important to the speculative customer, who is primarily active on the discount brokers,” said Prateek Mehta, founding partner India at South Park Commons, a venture fund. “As illustrated by continued high market share in MTF of traditional players, now tech-first brokers also want to get into this business opportunity.”
Mehta was chief business officer at Angel One prior to joining South Park Commons.
Industry insiders said the overall MTF loan book in the country would be around Rs 75,000 crore and a major chunk of that would be with ICICI Securities and other traditional brokers. ICICI Securities has 20% market share of this outstanding book, they said.
“This is a purely underwriting business with some degree of risk involved, so discount brokers went slow in this. But now, as many revenue generating channels are coming under regulatory scrutiny and these startups are also getting into higher net worth, they are getting into MTFs,” said Tejas Khoday, cofounder at Fyers.