"Angel One’s Struggles Unveiled"

Angel One, formerly known as Angel Broking, was once a dominant force in the Indian stockbroking industry, particularly after its transformation into a discount broking model. This transition allowed the company to achieve rapid growth and capture significant market share. However, in recent months, Angel One’s stock has faced a sharp decline. Trading at a high of nearly ?2800 just a few months ago, its share price now fluctuates between ?2100 and ?2300. This dramatic fall in valuation has raised questions about the company’s strategies and market positioning, especially in light of its ambitious announcements about entering new domains such as mutual funds, insurance, and other financial products. Despite these efforts to expand its portfolio, the market’s reaction has been lukewarm, prompting a deeper investigation into the factors contributing to Angel One’s current challenges.

A critical measure of success in the brokerage business is the growth of the active client base. Angel One has seen its active client base grow to approximately 7.8 million. While this figure represents a solid achievement, it lags behind competitors like a, Groww which boasts 12.9 million active clients, and Zerodha, which has surpassed Angel One with 8.1 million active users. Although Angel One continues to add to its total client base, this metric includes all registered accounts and does not necessarily reflect those actively trading. Active clients—who generate revenue through trading at least once a year—are a more accurate indicator of profitability. As competition in the industry intensifies, maintaining and expanding this segment has proven increasingly difficult for Angel One.

The company has demonstrated moderate revenue growth, recording a year-on-year increase of 19.2% in the latest quarter. However, its profit growth has been limited to a mere 8%, signaling deeper issues. Much of this slowdown can be attributed to recent regulatory changes implemented by SEBI (Securities and Exchange Board of India), which have had a pronounced effect on trading volumes in the derivatives market (F&O). The derivatives segment has been a cornerstone of Angel One’s revenue, contributing approximately 81% of its brokerage income. SEBI’s tighter regulations, including higher margin requirements and restrictions on small traders, have significantly curtailed retail participation in this market. As a result, trading volumes in the F&O segment have plummeted by 37%, directly impacting Angel One’s revenue and profitability.

Angel One’s heavy reliance on brokerage income highlights the vulnerabilities in its business model. Currently, 61% of the company’s revenue stems from broking activities, with another 23% coming from interest income, and the remainder from auxiliary services. The regulatory clampdown on F&O trading has exposed the risks of depending too heavily on a single revenue stream. Recognizing this, Angel One has started diversifying its business. The company recently secured a license to launch its own mutual funds, with plans to introduce a range of schemes in the near future. Additionally, it has ventured into wealth management, allocating ?50 crore to target high-net-worth and ultra-high-net-worth individuals. Angel One is also expanding into the insurance and lending sectors through strategic partnerships with established players. These initiatives aim to create a more balanced revenue mix and reduce the company’s dependence on brokerage income.

Despite these diversification efforts, the benefits will take time to materialise. While Angel One’s management had anticipated the impact of SEBI’s regulations and prepared for a shift in its business strategy, the immediate repercussions have been severe. The decline in trading volumes and the resulting slowdown in revenue growth have raised concerns among investors. This uncertainty has further weighed on the company’s stock performance, contributing to its downward trajectory.

One potential bright spot for Angel One and the broader brokerage industry lies in SEBI’s recent proposal to allow retail investors to participate in algorithmic (algo) trading. Algo trading, which is currently dominated by institutional investors, offers significant advantages in terms of speed, efficiency, and volume. If retail participation is permitted, it could lead to a substantial increase in trading activity, benefiting brokers like Angel One. In international markets such as the United States, algorithmic trading accounts for an estimated 68-70% of total trading volumes, underscoring its transformative potential. A well-regulated framework for retail algo trading in India could provide a much-needed boost to Angel One’s core brokerage business.

Another aspect to consider is the competitive landscape. Industry leaders such as Zerodha and Groww have already diversified their offerings, with both companies launching mutual fund and wealth management services. To regain its competitive edge, Angel One must not only catch up in these areas but also differentiate itself through superior service and innovative solutions. The company has made strategic investments in technology-driven offerings, signaling its commitment to staying relevant in a rapidly evolving market. However, these efforts are still in their early stages, and the results remain uncertain.

In conclusion, Angel One’s recent struggles reflect the challenges of operating in an increasingly competitive and highly regulated industry. While the company’s active client base continues to grow, it has not been sufficient to offset the adverse effects of SEBI’s regulations on its core brokerage business. The company’s initiatives to diversify into mutual funds, wealth management, and other financial products are steps in the right direction but require time to yield meaningful results. The potential introduction of retail algo trading offers a glimmer of hope, with the possibility of revitalising trading volumes and revenue growth. Ultimately, Angel One’s future success hinges on its ability to execute its diversification strategy effectively, navigate the regulatory environment, and maintain its relevance in a dynamic and competitive market.