ICICI Securities Ltd

key beneficiary of consolidation in industry, stricter SEBI norms and financialization of savings

Enhancing experience and deepening engagement with customer’s
I-Sec has aligned its business model with the changing aspirations and needs of the customer by focussing on the twin strategies of customer acquisition and engagement.
With the objective of faster client on-boarding, I-Sec has deployed T20 digital process of client acquisition, resulting in customers being able to trade within 20 minutes in Equity and MFs as compared to two days through the physical mode.
With digital integration emerging as a vital pillar of customer connect in the new-age business environment, I-Sec has launched a new website interface which is aligned to changes in customer behaviour, and focuses on asset allocation and tools to assist in decision-making.

Increase in market share of large brokers
Investors have lost confidence after the Karvy Stock Broking and BMA Wealth Creators fraud where clients securities were pledged without their consent. Such scam will expedite consolidation in the broking industry. Investors are likely to do business with trusted brands with strong governance practices. I-Sec can be one of the biggest beneficiaries of this consolidation.

Huge opportunity in tapping ICICI Bank’s existing customers
I-Sec has recently entered into a revenue-sharing arrangement with ICICI Bank to boost its client acquisition efforts, both quantitatively and qualitatively, similar to a business partner channel agreement. This move has helped augment customer acquisition and improve quality of customers by tapping existing bank customers, while the bank will benefit from revenue addition and liability pool.

Expansion of product portfolio
During 2019, I-Sec expanded its product portfolio by foraying into PMS (portfolio management service) and health insurance through tie-ups with Religare Health Insurance co. ltd. and Star Health and Allied Insurance co. ltd.

Wide distribution network
The company is a leading distribution franchise, being the second largest non-bank mutual fund distributor. I-Sec has one of the largest pan-India distribution networks of around 200 ICICIdirect offices in over 75 cities, 7,100+ sub-brokers, authorised persons, Independent Financial Associates (IFAs), Independent Associates (IAs) and presence in 3,750+ ICICI Bank branches.

Innovative offerings
ETF - Intelligent Portfolios (EIP)
I-Sec recently launched a unique investment product called ‘EIP’, that invests in a multi-asset basket of low cost Exchange Traded Funds (ETF) based on the client's risk profile. The investments in this portfolio are monitored daily and the allocations are adjusted based on market conditions so that the investor remains within his or her risk tolerance limit at all points of time.

SIP Protect
SIP Protect is Systematic Investment Plan (SIP) with added Term Cover without any extra cost for Investors. I-Sec has recently launched a unique investment plus protection product ‘SIP Protect’, which offers life insurance cover based on the investors SIP investments. I-Sec is amongst the first online distributors to offer this product, which is being made available through the icicidirect.com platform.

e-ATM
To address the immediate liquidity requirements of retail customers, this new product allows customers to receive payouts into their linked bank account within 30 minutes of their trade, which otherwise takes over two days. This facility comes at no additional cost and has a daily limit of Rs.50,000.

Direct2U
I-Sec has launched a unique offering for its private wealth clients, called Direct2U, under its investment advisory services. This offering leverages the powers of technology, advisory and transparent pricing to enable clients to invest digitally in direct schemes of mutual funds, through the ICICIdirect platform for a fee. Direct2U brings to clients process-based risk assessment, defined asset allocation strategies and active investment advisory.

Rising commitment to MF investments through Systematic Investment Plans (SIPs)
Continuous investor education via industry body Association of Mutual Funds in India (AMFI), by individual MFs, as well as SEBI has contributed to a significant awareness amongst retail investors about mutual funds and SIPs as a convenient and disciplined approach to investing in equities on a periodic (weekly, fortnightly, monthly) basis. Under guidance from SEBI, industry umbrella body AMFI began the ‘Mutual Funds Sahi Hai’ (‘Mutual Funds Are Good’, also translates as ‘Mutual Funds Are the Right Choice’) campaign. Over the past two years, the campaign has penetrated multiple media platforms through its eye-catching adverts explaining various aspects of MF investing.
I-Sec’s SIP count saw robust growth over the years growing from 2 lakhs as on March 31, 2015 to 6.3 lakhs as on March 31, 2018 and to 6.7 lakhs at March 31, 2019.

Beneficiary of fundamental transformation in the Indian savings environment
India has historically been and is expected to remain a savings economy. The gross domestic savings rate (as a percentage of GDP) is higher than those of major economies such as the US, the UK, France, Japan and Germany. Indians traditionally have been great ‘savers’ but not good investors. Both the terms used to be confused with each other and most of the savings went into gold, real estate and fixed deposits. However, what is happening now is nothing short of a revolution with people preferring more of financial assets as compared to physical assets and within the realm of financial assets, the allocation towards smarter investment products like mutual funds, PMS, is increasing compared to fixed deposits.

Covid-19 impact
SEBI and the government have decided to keep markets open as usual and states like Maharashtra, Gujarat and Rajasthan have declared stock broking as an essential service. Increased market activity triggered by high volatility will benefit brokerages.
Because of unprecedented fall in stock markets coupled with present lockdown leading to liquidity crunch and credit freeze, it is difficult for small brokers to fulfil their settlement obligation with increased mark-to-market pressure. We believe that players with strong digital capabilities will gain market share from this pandemic.

Risks

Market Risk
In case of extreme volatility, the upfront margin collected from clients may not be sufficient to cover the losses arising out of market movements which may in turn lead to losses to the company. I-Sec also carries some market risk pertaining to its proprietary trading activities.

Credit Risk
I-Sec is exposed to credit risk on account of investments by treasury group in fixed income instruments. The company is also exposed to credit risk arising out of receivables from its customers.

Competition from discount brokers
Broking industry is currently facing pressure on account of increased competition from discount brokers.

Increased adoption of direct mode of investing in mutual fund schemes
A greater number of retail investors are using the direct route to invest in equity schemes (9 per cent in 2019 from 5 per cent in 2015). Accelerated adoption of direct mode will have a negative impact on distribution income.