If the
lives of start-up founders are about sweat, blood and tears, no one told the
trio at Mumbai-based discount broking firm RKSV.
To be honest, they had a
considerably smooth ride. Within two years of
starting operations and largely operating in a dull market, RKSV is now clocking
daily turnover of Rs 4,000 crore.
That's about 1.3 per cent of total turnover of NSE, in a
business where even the leaders are at 5-6 per cent. For the US-bred trio —
Raghu, brother Ravi and their friend Shrinivas Viswanath — it was a move by the
Indian capital market regulator to allow algorithmic trading that encouraged
them to dip their toes in Indian waters.
And when the Securities and Exchange Board of India allowed the
direct market access (DMA) facility in April 2008, which gives investors direct
access to a stock exchange's trading system, they decided to put in both their
feet.
Prior to 2009, their only connection with India was the
occasional visit to meet relatives. "DMA was the reason we came to India.
We saw a lot of opportunities and wanted to explore them," says Raghu, a
University of Illinois graduate in actuarial science and finance.
The concept of algorithmic, or high frequency, trading was not
alien to them. Before coming to India, the brothers were active in the US
foreign exchange markets between 2006 and 2008.
But, in October 2008, they had to wind up after the global
financial markets imploded; trading opportunities had dried up, liquidity had
shrunk and spreads had widened enough. By then, however, they made a killing of
about $2 million, giving them the self-belief — and the capital — to explore
other business ideas.
In 2009, Raghu and
Ravi, along with Viswanath, a computer engineer in New York, shifted base to
India. Although the Indian markets were alien to them, funding a venture was
never a problem.
Raghu and Ravi spent the first two years trading with their own
money, which helped them gauge the pulse of the market here. Meanwhile, they
secured a membership to the Bombay Stock Exchange, which had slashed its fees
significantly to rope in more members.
After making good money in the two years in proprietary trading,
they saw stockbroking as a natural progression. But to set up shop in India, at
the time they did, was a contrarian call.
Disappointed by the previous government's tardy attitude towards
business and economic policies, business confidence in India had hit its nadir.
Foreign investors were wary and several nonresident Indians (NRIs) were
returning to countries where they held passports. The broking industry was
bleeding too. While competition in institutional broking business was fierce,
retail investors had deserted the markets.
But there was still
a segment of market participants that was underserved: traders, for whom high
brokerage costs was making it difficult to make money. "We realised there
were many traders who did not have cheaper options to trade," says Kumar.
"What shocked us was the number of branches that retail brokerages had,
which is not the case in the US."
It did not take too much time for RKSV's business to pick up as
its relatively-older rival Zerodha had taken the plunge by then. Although there
was little that RKSV could do to hold an edge in terms of technology, it
managed to attract clients by launching the 'unlimited trading model', where
traders can transact for as many times at a fixed cost.
Currently, RKSV has about 20,000 clients. They are serviced by
about 50 employees from its office in Mumbai's emerging financial services hub,
Bandra-Kurla Complex. Raghu said the firm is looking to double its client base
to about 40,000 in 2014-15. That's not bad for a two-year-old, first-generation
firm.
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