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 Tax consultant in India 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.