Groww: Making investing as easy as ecommerce

(From left): Harsh Jain, Lalit Keshre, Ishan Bansal and Neeraj Singh, co-founders, Groww Image: Nishant Ratnakar for Forbes India

Four shy techies fascinated by the capital markets wanted to make financial services in India easy and accessible. Just like what ecommerce did worldwide, they wanted to make investing hassle-free. That was seven years ago, when mutual funds penetration in Indian households was minimal and the monthly inflow of systematic investment plans (SIPs) was still below ₹5,000 crore.

The young engineers, who had worked at Flipkart, were confident that they could create a model in financial services with similar technology and customer-centricity that had disrupted the ecommerce industry.

The challenge was tough. The financial services market was, then, led by legacy players in the brokerage business, mutual fund distribution and asset management companies. New online discount brokerage companies had just emerged, vying to break through this heavily concentrated pie.

There itself was the golden chance, to explore the untapped section of people who were looking for investment options but stayed away for various reasons from lack of understanding of products to inaccessibility.

“Only 20 million Indians held a share in mutual funds from 2016 to 2018, despite 60 percent of household savings in India being held in financial assets (including mutual funds, insurance, cash, direct equity etc.). There was an opportunity to make the process of purchasing financial products more accessible and transparent,” says Lalit Keshre, co-founder and CEO, Groww.

The idea that Keshre, Harsh Jain, Neeraj Singh and Ishan Bansal seeded grew into a company called Nextbillion Technology in May 2016. It started business first as a mutual fund investment platform under the brand name ‘Groww’ in 2017, operating out of Bengaluru. It is a subsidiary of Billionbrains Garage Ventures (BGV).

The company became a Securities and Exchange Board of India (Sebi) stockbroker in 2020, and thus started its journey to challenge the industry and topple the leader, Zerodha, three years later.
 

The seed of ‘Groww’th

Stock trading in India evolved into a matured ecosystem by the 2000s with stricter regulations, reforms, initial public offerings (IPOs) and two robust stock exchanges. But only people from a select demography, mostly from trading cities like Mumbai, Gujarat, Kolkata and Delhi, showed interest in stock markets trading and investing.

Online discount brokerage companies disrupted that by bringing stock markets closer to people on their mobile phones, where trading was easy to execute, understandable and affordable. Discount brokers offer services at reduced commission rates compared to a full-service broker. During the Covid-19 lockdown, people, mostly younger, new income earners, started a new mode of earnings via buying and selling of stocks on their mobile phones just as they would purchase clothes, food or grocery on an ecommerce app.

A very late entrant to the brokerage industry, the task for Groww was simple—grab new clients and increase market share as new demat accounts started to grow with every rise of the benchmarks Sensex and Nifty in 2020 and thereafter.

As new clients were adding on to the platform, Groww got aggressive with its products and services. Along with the brokerage business in 2020, it diversified into services like digital gold, ETFs (exchange traded funds), intraday trading and IPOs. In their pursuit of rapid growth to turn it into a scalable business, however, the founders did not lose focus of the premise the company was built on: ‘Customer experience’.

Keshre says that their focus has been to make financial services simple and transparent, and that they do not work with “sub-brokers or associated persons, free agents, or any kind of middlemen”.

The founders’ earlier experience in launching new products and services in a highly competitive market helped. Keshre and Jain were also familiar with the startup environment. Keshre had founded an online learning company called Eduflix and also been an early team member at Ittiam Systems. Jain had previously co-founded a storytelling startup.

Keshre, a BTech from IIT Bombay, is now CEO of the company and responsible for product and customer experience. Jain, a BTech from IIT Delhi and MBA from UCLA, heads growth and business as COO.

Co-founder Neeraj Singh is CTO, and heads product development and customer research. An engineer, solution developer, and coder, Singh was with Flipkart as an engineering manager and has built the Flipkart customer returns and refund system before starting Groww. He holds a BE degree in information technology from ITM, Gwalior and a PG Diploma in advanced computing from CDAC.

Ishan Bansal, CFO, graduated from BITS Pilani and holds an MBA in finance from XLRI, Jamshedpur.

Also read: Can mamaearth live up to its hype and create value for retail investors?
 

The growing up years

Innovation and technology are money guzzlers. Groww needed more funds to keep the engine chugging and support the vision of what it calls ‘democratising investing in India’.

In 2018, it raised seed funding from CureFit founders Mukesh Bansal and Ankit Nagori along with Y Combinator. A year later, Groww raised $6.2mn in a Series A funding round led by Sequoia India. Y Combinator, Propel Venture Partners and Kauffman Fellows also participated in the investment round. It had earlier raised $1.2 million in Pre-Series A led by Insignia Venture Partners, Lightbridge Partners and Kairos.



A few months later, in September 2019, Groww raised $21.4 million in a Series B funding round from US-based VC firm Ribbit Capital. The round also saw participation from existing investors Sequoia India and Y Combinator.

In 2020, Groww raised $30 million in Series C, led by YC Continuity with participation from existing investors Sequoia India, Ribbit Capital and Propel Ventures. Just a few months later, in April 2021, it raised $83 million in a Series D round, making it a unicorn. Tiger Global Management led the fundraising with the participation of existing investors Sequoia Capital India, Ribbit Capital, YC Continuity and Propel Venture Partners.

In October 2021, the startup raised Series E funding of $251 million at a valuation of $3 billion. This investment was led by ICONIQ Growth with other investors including Alkeon, Lone Pine Capital, and Steadfast. Groww’s existing investors, including Tiger Global, Sequoia Capital India, and Propel Venture Partners too participated in this round.

Nextbillion Technology’s net worth stood at ₹590 crore as on March 2023 and it remains comfortable for the current scale of operations and the near-term growth plans, say ICRA ratings. “There were no borrowings outstanding as of March 2023, although the company has availed overdraft facilities which are utilised for intermittent, short-term funding requirements,” the rating agency says.

With 6.63 million active clients on the National Stock Exchange in September 2023, Groww had the highest number of users on any stock broking platform in the country Image: Nishant Ratnakar for Forbes India
 

The game changers

In 2021, Groww diversified into a new business—derivatives trading or Future and Options, considered as a cash cow in the brokerage industry. An exponential rise in derivative trading compared to cash markets both in volumes and average daily turnover has helped garner more clients. This raked in the moolah for Groww as these derivatives trades are mostly done by retail or individual participants.  In FY23, the F&O business fetched nearly 80 percent of Groww’s broking income.

Despite incurring losses, most retail participants are attracted to F&O trades, a clear beneficiary of which are the brokerage platforms. The total number of unique individual traders who traded in the equity F&O segment was 45.2 lakh in FY22, growing from 7.1 lakh in FY19, according to a study by Sebi. This is a significant increase of more than 500 percent in FY22 as compared to FY19.



And then came the game changing moment. In September 2023, Groww toppled Zerodha to become the biggest brokerage company in India in terms of active investors on the National Stock Exchange (NSE), with 6.63 million active clients. Rival Zerodha had 6.48 active million users in the same month. Since then, the gap has been widening with Groww’s active clients increasing 49 percent to 7.6 million in December 2023 from the same month the previous year. In December 2022, it had 5.1 million active clients on the platform.

The increase in the opening of demat accounts has also helped new brokerage companies benefit significantly.  New demat accounts surged to 4.2 million in December 2023 compared to an average monthly addition of 2.1 million in FY23. A demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in a digital format. In India, individuals with shareholdings of up to ₹2 lakh in a listed company are considered retail investors.

The number of active clients on NSE increased 3.6 percent on a month-on-month basis to 36.2 million in December 2023. Currently, the top five discount brokers account for 62.1 percent of total NSE active clients.

On the mutual funds front, Groww became the largest online distributor in December 2023 with 1 million new SIP accounts in the month, for the first time ever.

In 2023, Groww completed the acquisition of Indiabulls’ asset management business and rebranded it as Groww Mutual Fund. Since then, the AMC business has launched three new fund offerings (NFOs) and has seen a 15 times growth in active customers. The latest NFO, called Groww Banking & Financial Services Fund—an open-ended equity scheme—was launched in January.

The numbers say it all

Unlike many startups that have failed to keep expenses in check, Groww managed to taste profitability within a few years of launch. In FY23 it became profitable for first time with net profit at ₹448.8 crore on a revenue of ₹1,277.8 crore. It had incurred a loss of ₹239 crore in FY22 while its revenue was ₹350 crore. On a standalone basis, its net profit was ₹73 crore in FY23, a phenomenal rise from ₹6.8 crore in the previous year. Fee income (including broking) fetched ₹1,204 crore in FY23, increasing from ₹324.1 crore in a year.

The growth in the company’s client base led to improved broking volumes and earnings in FY2023 with the company reporting a return on net worth (RoNW) of 13.2 percent, says ICRA.

In FY23, 85 percent of the company’s revenue came from the broking business, and the rest is from credit business and ‘other interest’ income. Currently, the Groww platform offers products in mutual funds, stocks, IPO, derivatives, loans, consumer payments, including an AMC business.

“Prior to the launch of the broking business, our only source of income was interest income. Today, charges from the broking business contribute to the largest share,” Groww says.

In 2022, Groww launched personal loans financing under Groww Creditserv Technology after it got an NBFC licence. Subsequently, it forayed into consumer payments under Groww Pay Services.

According to ICRA, the company’s earnings profile remained constrained till FY2022, due to limited vintage in the equity broking space. The earnings profile improved thereafter as the company made significant client additions during FY2022- FY2023.

As of March 2023, there were no borrowings outstanding, although the company has availed overdraft facilities which are utilised for intermittent, short-term funding requirements.

The company is preparing to foray into the margin trading facility (MTF) business, which will lead to higher borrowings, although ICRA expects the financial leverage to remain comfortable. “MTF is a product that’s been requested by a cohort of advanced users. We are working on building something that can offer a delightful experience,” Groww says.

Over the next three to five years, Groww aims to offer more financial products that can solve a variety of customer needs.

“We will continue expanding retail penetration in capital markets. We plan to solve for credit needs for different customer cohorts. We plan to build Groww Mutual Fund as one of the most trusted AMCs in India and introduce innovative offerings that reduce barriers to entry and make investments even simpler. Through Groww Pay, we hope to make payments faster, and seamless across the country,” says Keshre.