Dear Sheru,

I hope your week is going well. It is always a pleasure to take a pause to pen this column and connect with you. The stock markets remained volatile in February this year and closed in the red for the third consecutive month. All our key businesses including broking, mutual fund (MF) distribution, exchange margin funding (EMF) and Loan Against Securities (LAS) delivered a weak performance in this period. Nevertheless, amid the gray clouds, there were some rays of sunshine. So let us hear the good news first.

• Our market share in the F&O segment of the equity broking business grew by a respectable 35% MoM in February 2023.
• The ADTO of our commodity broking business grew, though marginally, in February 2023 compared with the previous month.
• We recorded a 2% growth MoM in the market share of our currency business in February this year.
• Our net MF collection was positive in February 2023.
• Our SIP collection was also positive in the same month, inched up by 1.26% MoM.
• Last month, we rolled out SIP Rewards Dhamaka contest, which is expected to boost our SIP collection in the coming months.
• We informed the staff of the benefits of investing in ETFs through EMF and published a list of ETFs eligible for the EMF facility last month following the SEBI’s recent decision to widen the scope of margin trading to include ETFs.
• Our ESOP book expanded by more than 4% MoM in February 2023 even after we raised our ESOP interest rates in response to a rate hike announced by the central bank during the month.
• The trailing 12-month active client count was 703,693 at the end of February 2023. Though less than our January-end count, the performance on this metric (in % growth/decline terms) is relatively better than that of both the overall industry and the largest full-service broker in the country.
• Close to 8.7K branch-mapped broking clients were reactivated as part of the MRP in the last month.
• We announced several reward and recognition initiatives in February 2023 to motivate the front-line staff and improve our overall performance.
• We started providing contract notes in PDF format to customers w.e.f. February 1, 2023.
• Last month, we also set up a new department called Business Protection and Control, and appointed Vipin GS, a senior legal and compliance professional, as its head.
• Bhavin Doshi availed mobility to move from Operational Risk Control to Operational Permanent Control as the head of the division.
• We made a nursing room available at our Gigaplex office for the nursing mothers in the HO last month.

The Indian stock market remained under pressure in February 2023 as the global market sentiment turned weaker in the wake of the Silicon Valley Bank crisis in the USA. The benchmark indices, Nifty and Sensex, closed the month in red. During the month, our cash market share contracted by 10% month on month (MoM); new client additions dropped by 7% MoM; and daily average revenue declined by 8% MoM, though the fall in the revenue was slower compared with the previous month. On the other hand, our market share in the futures & options (F&O) segment rose by a healthy 35% MoM on the back of the options contests organised by various business teams. We must educate customers in the benefits and risks of options trading, so that they can take informed decisions and make the most of the market opportunities. Please also handhold the customers and provide them full support to help them ride the volatility in the market.

In the commodity broking business, our average daily turnover (ADTO) increased marginally in February 2023 compared with the previous month. But our revenue dropped by nearly 5% MoM and we lost market share because of low participation in crude and natural gas options trading. In the currency broking business, though our market share grew by 2% MoM, the ADTO and revenue declined by 16.5% MoM and nearly 22% MoM respectively. As I have mentioned before, to improve the performance in both businesses, we must add new customers and increase our servicing capabilities at a faster pace through enhanced participation of the Relationship Managers. In the currency broking business, we also need to expedite the process of NISM-Currency certification in the Branch Network and Franchise Network to gain adequate servicing capacity. Ensuring that Business Partners recommend commodity and currency trading to their customers by way of diversification will help too.

Our MF assets under management (AUM) fell by 0.85% MoM to Rs.6,352 crore in February this year. The fall was less than the decline recorded by the broader equity market (the Nifty was down by 2.03% MoM during the month) on a month-on-month basis. The gross inflow for the month stood at Rs.120.23 crore and the net collection was positive at Rs.21.46 crore, which was a jump from the last month’s net collection of Rs.3.41 crore. The inflows into systematic investment plans (SIPs) also continued to grow and picked up pace compared with the previous month – we added Rs.66 lakh through SIPs during the month, taking the total SIP collection to Rs.52.78 crore. Last month, we rolled out the SIP Rewards Dhamaka contest with a view to helping more customers achieve their financial goals through the SIP route. We, therefore, expect our SIP collection to gain momentum in the coming months.

Our EMF business contracted by ~8% MoM in February this year. The performance was weak on account of the spill-over effect of the selling pressure on the Adani Group shares which greatly affected the cash market sentiment, leading to a correction in the mid-cap stocks and the related funding positions. Our Branch Network’s contribution stood at almost 67% of the total funding with the Business Partner channel accounting for the rest.

We also announced the annual targets for the EMF business to the Branch Network last month. Now we must collectively make all efforts to acquire new clients for the business and achieve our annual targets. A couple of factors will play a supporting role here. First, as you all know, our customers can now invest in exchange traded funds (ETFs) through the EMF route. ETF investing offers several advantages including diversification, flexibility and tax benefit. Investing in ETFs through EMF offers more benefits. We expect the front-line to closely follow the informative e-mailer campaign, ETF through EMF, and educate customers about these benefits. Second, EMF Tigers, a recognition programme launched last month, will no doubt also go a long way in increasing our EMF business. We look forward to some new EMF records this year!

Our LAS book contracted by 3.47% MoM in the last month. The contraction followed Sharekhan’s decision to raise the LAS and Employee Stock Ownership Plan (ESOP) interest rates in the last month as well in response to the rate hikes implemented by the Reserve Bank of India in February this year. The good news is that in spite of the rate hikes, our ESOP book increased by 4.69% MoM in February 2023. The new disbursements plunged during the month -- we achieved total disbursements of Rs.56.81 crore, which is a decline of 16.09% compared with the previous month’s total disbursals.

Channelwise break-up of LAS disbursements in February 2023

The Mission Reconnect Programme (MRP) had another robust month in February this year. The trailing 12-month (TTM) active client count was at 703,693 at the end of February 2023. Though less than our January-end count, the performance on this metric (in % growth/decline terms) is relatively better than that of both the overall industry and the largest full-service broker in the country. The MRP facilitated the reactivation of almost 8.7K branch-mapped clients during the month. What’s more, the efforts of the Business Partners resulted in the reactivation of another 3.6K clients in the same period.

The trend remains that reactivations are also good for revenue growth. Close to 7% of the clients who got reactivated in February have also traded in futures & options already. Also, a large proportion of the reactivations have continued beyond just one or two transactions. Almost 40% of the reactivations that took place in February have conducted three or more transactions already. My best wishes to the entire front-line team as well as our Business Partners for the continued success. Let’s aim and plan to take this programme to newer heights.

As the stock market remained volatile, market sentiment turned brittle and our performance continued to slip, we rolled out a host of initiatives last month to motivate the front-line, drive the business and improve our performance. I will quickly mention the names here.

The Network Management team rolled out Mission Reconnect 2023, an annual client reactivation programme, to win 10 lakh hearts before the end of CY2023.

The Assets Product team introduced a contest called SIP Rewards Dhamaka to boost our SIP collection.

Given that options trading is becoming increasingly popular, the Super Trader team launched Options Thailand for the front-line whereas and the Franchise Servicing teams started Options Kar Dhanda Bada for the top 25 Business Partners.

With the aim of taking our EMF business to the next level, the EMF team started EMF Tigers, a leaderboard to recognise the top performers in the EMF business from the Branch Network.

To provide much-needed support to our commodity business, the Commodity & Currency Business team announced an incentive plan, Incentive Plan 2023, for the Onboarding team.

Initiatives such as these seek to recognise the efforts of Sherus and boost the overall performance of the company at the same time. We expect large-scale participation in these incentive programmes and wish all participants all the best.

Starting from February 1, 2023, our customers are getting their contract notes in PDF format as against the HTML format earlier. The new format is secure as PDF files can be encrypted to protect confidential data. Sharekhan has switched to the new format to comply with a regulatory requirement as well as to align with the standard industry practice of transferring confidential data in a secure password-protected format. To carry out the change we implemented a web-based application called Comtrack, which connects the exchanges, warehouses, assayers, members, investors, clients, and Comtrack members like banks and financial institutions.

We also overhauled the entire process of creating and e-mailing digital contract notes in order to fix the issues inherent due to legacy systems. For example, up till now the Operations team had to create the digital contract notes by manually entering the data in the system. Also, due to the limitations of the system, only a few batches of the contract notes could be made at a time earlier. With the implementation of Comtrack, there is no manual work involved at all. The entire process has been automated. This has improved the turnaround time significantly for the Operations team. We have also outsourced activities like the dispatching and the tracking of the physical contract notes, thereby freeing the team’s time for more critical tasks.

We set up a new department called Business Protection and Control last month with three key functions, including Operational Permanent Control (OPC), Business Regulatory and Anti-Fraud. The idea behind creating a new department was to ensure proper guidance and coordination on processes and procedures as well as to ensure proper implementation and maintenance related to the first line of defence in operational, business compliance and regulatory topics covering our entity. We also onboarded Vipin GS, a senior professional with a rich legal and compliance background, to head the new department. Vipin reports to our Chief Operating Officer, Stefan Groening. In another organisational change related to the new department, we appointed Bhavin Doshi as the head of OPC. He moved from Operational Risk Control to OPC to fill the position vacated by Andrea Saldanha, who bid goodbye to Sharekhan last month after a one-year stint. Bhavin reports to Vipin.

We achieved an important milestone in February this year. In keeping with our commitment to support women at work and become a better employer, we made available a nursing room in our office premises last month. A first, the facility has been created in our Gigaplex office, given the availability of space in the location. We hope a dedicated clean, safe and private nursing space along with the creche facility available in the office campus will help the nursing mothers in the Head Office to better manage the transition back to work after a maternity leave. We understand the combination of nursing an infant and pursuing one’s career is challenging and a key reason why many women do not return to work post-maternity and give up their financial independence. We hope all the nursing mothers in the HO will avail of this facility to not only follow optimal nursing practices but also pursue their chosen career without any guilt or stress. It goes without saying that such staff will be allowed the break time needed to avail of the facility and the same can be worked out with their line manager and the Human Resource Business Partner.

That would be all for today, I hope you enjoyed the read.

Thank you.

Best regards,
Jaideep Arora
Chief Executive Officer
Sharekhan