Cover Story

DESTIMONEY SECURITIES: ON THE FAST TRACK

One of India’s fastest-growing financial services companies with 650 employees, 1100 franchises, 40 branches and a daily trade turnover of over Rs. 1,200 crore, Destimoney Securities is a full financial enterprise. Business Barons interviews Sudip Bandyopadhyay, MD and CEO.

DIFFERENT STRATEGIES

SUDIP BANDYOPADHYAY: I have been in the financial services industry for very long. I started my career with Levers and then moved on to ITC. I used to head the treasury and investments of ITC for quite a long time, then I was with Reliance of course.

What I did while at Reliance was very different from what I am doing now. Let me re-phrase that: in both instances, my task is all about helping the investor grow his wealth — but the methodology and the actual way of work differs.

Reliance is a huge platform; and so there’s a difference. At Destimoney Securities, we are very conscious about the costs from day 1, and the aim is to make money from the very beginning whereas in Reliance, I had the freedom to create a very large organization. Of course, I needed to make money, but at Reliance, one had the luxury of a great brand and of course the luxury of being able to utilise a large infrastructure. In comparison, at Destimoney Securities, one had to create everything on one’s own, which is the biggest challenge and it is interesting. On one hand, it’s a great experience but on the other hand it’s tough as well. One goes forward on the strength of one’s own brand equity. Effectively, at Destimoney Securities, I did not have a ‘brand’ supporting my efforts. A brand gives you a definite comfort.

There is a difference between the strategy I followed in Reliance and what I am doing here. When I was in Reliance, we used to follow the ‘mass customer strategy’ because people knew about Reliance and what it was. Here I can’t follow the same strategy. So we completely turned it around and decided to focus only on business volume. We have gone to the customers who understand and pitched the right product to him — so one has to strategise based on the situations.

GLOBAL COMPARISON

BANDYOPADHYAY: By ‘global’, mostly we mean the United States, as it is the most mature market in financial services. The financial market in the US is segregated. You have the core retail players and institutional players and those who are in a completely different league. So you have a Charles Schwab, who is focused on retail and a Goldman Sachs and Merrill Lynch and a Morgan Stanley. Now, as I mention the names, you will realise that these are completely different. That demarcation, in India, does not exist in financial services — because India is not an evolved market to that extent.

The basic difference is size. The US market is huge and the Indian market is comparatively very small. Most of our players offer the entire gamut of financial services. The second part is that US laws allows you to do lot of things — even for a retail broker. So take a Charles Schwab or an E-trade. Unfortunately when the 2008 financial crisis hit the USA, E-trade was invested heavily in real estate mortgages and that hit them. So apart from running a retail brokerage, they also run a quasi- bank and the bank part got hit. This explains where the scenarios in the US and India differ.

THE ADVISOR

BANDYOPADHYAY: In India, most intermediaries or financial service providers or financial service players are also into distribution of third party financial products, which traditionally is not focused on by the large US brokers. There the distribution of a third party product is the prerogative of the financial advisor. That is altogether a different community. So, the US model is an advanced model and our model is very different. India hasn’t reached that stage of maturity — yet.

The Indian model is a full service package and this is because full service agencies like Destimoney Securities are trying to provide a holistic, ‘complete, end to end service’ to our customers.

We are not a bank. Other than being a bank, we are trying to provide the entire gamut of services in the financial sector where we are an intermediary. So, Destimoney Securities provides an execution and research platform. We also provide wealth management, depending on the customer profile, to buy an asset management product. I provide research and suggest what it is you should buy. So it’s an intermediation and distribution model on financial services which is attempting to provide a complete solution.

We are now stretching that concept and also taking it into non-retail. We are also working with lots of corporates. We are mainly focused on the SME segment so while we are catering to our retail clients who may be high net worth, the person may also be running a business, and he must be having a company so he may be in need for fund raising or private equity investment. So we are trying to provide complete financial services outside the banking paradign.

FAST GROWTH

BANDYOPADHYAY: When I joined this company in January 2011, it was small. It used to do Rs. 50-60 crore in daily turnover. We now do about Rs 1,200-1,300 crore. So we have grown in the past 15 months. We used to have about 40-50 franchises. Currently we have 1100 franchises. We used to have 200 employees. Now there are 650 employees. Similarly, we used to have 12 branches and now we have 40 branches. Last year, ie 2011, was one of the worst years in the capital market in recent history. There was no growth. I am reasonably confident that we are the only company which has grown in 2011. Our market share use to be 0.07% of total market volume, which has now risen 0.62%, which is quite huge. 1% plus would be the largest player’s market share.

CUSTOMER LOYALTY

BANDYOPADHYAY: At the end of the day we are in the services industry. So, if customers are not happy, such a company won’t last. If our customers invest through our company, than we need to maintain discipline and ensure that our customers get a good return on their investment. I think there is no other way out. Even small service deficits get covered — provided you can deliver good returns.

FUTURE GROWTH

BANDYOPADHYAY: When you start up from a low base, the growth is great. We are expecting Rs 3,000 crore as our daily turnover by March 2013. We have a very clear principle. Our focus is on growing the customer base both directly and indirectly. We see the franchisee model as one that suits us. The franchisee is an independent businessman running his own business. A large broking company will have a lot of passive or inactive customers.

A franchisee is not interested in small inactive customers. He is only interested in those customers who trade volumes. That is the reason our company has grown because of the franchisee base and now we are expecting the franchisee numbers to grow up to 3,000. This is a very quick and efficient way of growing our customer base. It is all about putting systems and processes in place.

The way we operate is slightly different from others; we believe that each branch can support 30 franchises. We know exactly how we have to do it and what we want to do. There is no R&D happening on the expansion front. It is happening on the product front, opportunities keep coming in the market.

POLICY MATTERS

BANDYOPADHYAY: The first thing I would ask the finance minister is about operational issues and the problem of stamp duty. The industry has been talking about problems relating to stamp duty for a very long time. There is complete confusion as regards to what duty we are supposed to pay and where it is to be paid. There is utter confusion. One state’s policy says that you pay where your server is located. Some other state says you pay where your customer is located. It’s chaos; we need uniformity in stamp duty. Everybody gets deeds signed in Delhi because they don’t have stamp duty — I think that should be food for thought for the finance minister.

It has become very difficult to sell investment products in India since the last few years, and that is not good for the market, the company or the customer. It is very unfair to retail investors. The equity market will give you returns, which cannot be compared to any other products — subject to the proviso that it works only if you’re investing in and doing the right thing. There have been enough ‘accidents’ in the capital market over the years but today, by removing this option, I don’t think a great service is being done to the common man. One needs to popularize equity investment, which is not happening. I think there has to be a conscious effort on part of the government and the regulators and all of us to ensure that investors get good options to invest in equities.

Mark my words: you will see charges start increasing at some stage. Different companies will couch it in different terms. The fact is that if you expect the company to give you service, then you have to get out of that ‘one paisa’ mentality — so the charges will get hiked.

INDUSTRY BODY?

BANDYOPADHYAY: It’s a big challenge in the financial services sector. People coming together on multiple matters does happen but ultimately there is competition so presenting a united front is difficult. It’s a real challenge.

As industry players, we are all united. It’s a big challenge in the financial services sector: you need to come together on certain points; you need to make a complete pitch to customers on certain other points.

I don’t have a pessimistic point of view. Things have improved quite a lot in last 4-5 years and I have seen it over the years. I think there are certain areas where we need to do a course change or take a big policy leap and that is not happening.

The way we work with clients and advising them, we are focused. We have a strong research team. It identifies stocks and we tell investors to buy those stocks. Pick up some good pharma companies or a FMCG company, and you will get growth. If you are identifying the right stock, you will make your money. It’s not a question of index. As an investor, at the end of the day, you are buying the stock of the company and not the index. Some people, however, tend to go by the index, which is wrong.

When the market falls, one should be buying — but in reality, Indian investors exit their holdings in such times. Similarly, when prices rise and one should sell. But he buys.

At Destimoney Securities, we focus on clients. When we talk to clients, we explain everything in detail. We are targeting our clientele with the ‘options strategy’; the best thing is one-to-one interaction. We have an investor guidance workshop every Saturday and we have people coming here every weekend.

THE INDIA STORY

BANDYOPADHYAY: I think the India investment story is a great story. I am on the board of the Hong Kong Commodity Exchange and I interact with the global investor community. India is very significant; but there is lots of negativity about India in global markets. I have seen that nowadays, people have started standing up for their rights, people are protesting against corruption in India. It’s not that corruption is only in India! It is everywhere. So, if we take right steps and move ahead in the correct manner, it will be a matter of pride for all of us.

FACTFILE

SUDIP BANDYOPADHYAY

MD & CEO, DESTIMONEY SECURITIES

Sudip Bandyopadhyay, erstwhile MD & CEO of Reliance Money, is now the MD & CEO of Destimoney Securities (Destimoney) and is leading the company in its next phase of growth.

Sudip created and led Reliance Money, the largest retail broking and distribution company during his stint in Reliance.

Sudip has over 23 years of experience in the financial sector; he has been responsible for building Reliance Money into the country’s largest broking and distribution house.

He has also been instrumental in taking Reliance Money international through various innovative tie-ups and acquisitions.

Sudip was also responsible for the acquisition of AMP Sanmar that launched Reliance’s foray in the Life Insurance segment. A Chartered Accountant by profession, Sudip started his career as a management trainee with HLL and has worked across multiple assignments in the areas of Capital Market, Money Market and Currency Market operations.

Prior to joining Reliance, Sudip was handling all Capital & Money Market activities for the ITC group as Head of their Centralized Treasury and managing investment’s to the tune of Rs.4000 crores. He was responsible for the acquisition of a strategic stake in EIH and VST by ITC.

Sudip is also a Non-Executive Director on the board of Hong Kong Mercantile Exchange.

JHUMA GUHA

PRESIDENT

A Chartered Accountant and a Company Secretary by qualification, and has over 19 years of experience in the field of financial services.

Post completing Management Training with ITC Ltd., joined the Corporate Investments Division of ITC and over a period of 12 years handled the Legal, Secretarial, Finance & Accounting function for the Investment Subsidiaries including their restructuring and M&A transactions.

Joined Reliance Money in 2005 as Head of Finance, Legal, Risk & Compliance and a core team member for its nascent broking and distribution business. Was subsequently elevated as the CEO of the SBUs of Money Changing, Money Transfer and Gold Coin Distribution and headed an inter-disciplinary team of 300 people.

Presently, with Destimoney Securities as President, in charge of all Back Office and Support function for the Broking and Distribution businesses and as a core team member, in the process of scaling up operations to meet the expanded business of the Group in the financial services sector.

K. GIRI

CHIEF FINANCE OFFICER

A Certified Cost accountant with masters degree in Finance (Delhi University) and CPA from Colorado, USA with over two decades experience in finance, management accounting, taxation, audit, supply chain, M&A. Mr Giri worked with Ranbaxy Labs, with Nestle in India, Turkey and Central Asia. Joined Destimoney in 2007.

GURMEET SINGH

HEAD-BROKING

An Option Strategist, he is an MBA and has over 12 years of experience in Product Management & Business Development. He has worked with companies such as ICICI Direct, Reliance Money, National SPOT Excahnge and Bazee-all new age concepts.

He was instrumental in conceptualizing and introducing innovative investment products such as E-Gold and E-Silver and currently working on developing low risk option trading strategies. Joined Destimoney in January 2011.

ANIRUDH JAIN

HEAD OF DISTRIBUTION

Anirudh is an MBA and also an Associate Financial Planner. He has detailed knowledge and understanding of Insurance and Investment space in India for the last 10 years. Prior to joining Destimoney, he was associated with the banking sector having worked for reputed organizations like HDFC Bank and Indiabulls where he was instrumental in spearheading the Bancassurance Business looking after life and general insurance business across all the verticals. His go-to-market strategies helped in successful market penetration and product launches for various customer segments. Anirudh has displayed leadership skills in managing consistent branch performances pan-India and developing strategies and action plans to win new business and revenue streams.

The Problem Is Not The Distributor

Sudip Bandyopadhyay on what bothers him most in the financial services industry.

Business Barons: You mentioned one aspect about your industry bothers you.

SUDIP BANDYOPADHYAY: One peculiar thing in financial services is that the entire community, across the environment, is out to discredit the distributors. All regulators, irrespective of whether it’s SEBI, IRDA, PFRDA, etc believe that the distributors have to be removed. Everybody feels that the distributor is an evil & that’s pretty much the prevailing sentiment.

BB: And you don’t quite concur?

BANDYOPADHYAY: I don’t, and this is why: look at what has been the most successful financial instrument since our independence. It is something that our parents and even our grandparents must have taken: postal savings — the Kisan Vikas Patra, NSC, etc. They are a huge success, but how are they distributed? There is a large postal agent network.

BB: So you are saying distribution network is a must.

BANDYOPADHYAY: Last year, RBI published a statistic: they paid around Rs. 2,400 crore as a commission to postal agents. People don’t link and think — this means that it is the distributor who is doing the job. You don’t walk in to a post office counter, there is an agent who comes to your place and handles it for you and it has been happening for ages.

BB: That’s a good example . . .

BANDYOPADHYAY: Take the second thing, which is the most successful — life insurance. Again it’s the same story: growth happens because of the agency network.

BB: And where it was a ‘customer direct’ strategy, it hasn’t been as successful?

BANDYOPADHYAY: Look at the biggest flops, the biggest fiascos. One is PFRDA, which started NPS. I think that’s the biggest flop in history. The intention was to cover pretty much the ‘aam janta’ and the net result is some 70,000 customers over a period of five years. It’s a complete flop and why? They came out with a scheme of distribution through POS (Point of Sale), where the point of sale gets Rs. 40 for each transaction — who would be interested? It doesn’t even cover anybody’s cost. If I have to go to Churchgate, it will cost Rs. 100 so why will I want to do such a thing? What has happened to mutual funds, after removal of entry loads? Isn’t it the same thing?

It is very clear that doing away with the intermediary doesn’t work. Why are we trying to do this in the financial services industry? Do you buy vegetables directly from the farmer? No, you don’t. You will buy it from a regular vegetable vendor. You buy electronics from the outlet, not straight from the maker, you don’t buy apparel from the manufacturing factory. Across the world commerce works through distributors. I don’t understand why people are making desperate attempts to remove the distributors.

BB: Financial services is a different ball game . . .

BANDYOPADHYAY: Yes, and doing away with the intermediary has never worked and it should not work. If you actually imagine a mutual funds company is distributing its MF on its own throughout the country, just think how expensive it will become? It doesn’t work without distributors. So I think somewhere we are going drastically wrong in financial services.

I am not for a minute saying that the intermediary is a saint or is an epitome of all virtues, but that is the case everywhere. You can implement strong rules, punish wrongdoers or whatever but please don’t remove them completely. That is not the way to do it. If I have to take this theory and juxtapose it on real estate for instance – the basic reason why we don’t find sales taking place in real estate is that the “rule” way of working does away with the broker. You now have an ad in the newspaper and you have in-house marketing, it doesn’t replace the broker. Plus it is very expensive for a developer.

You need to have a proper code of conduct with the regulator — and you should have the right product. Take a product in which the first year sees 85 per cent of premium going as commission or expense, which is completely wrong. Why do such products get approved? Because once it is approved, the distributor is not a saint — if there is an income option, he goes for it.

As investors, we may be focusing on the wrong thing. For instance, we are always talking about some mutual fund or the other. Tell me, have you ever invested Rs. 2 lakh in a mutual fund? It has a regulator plus an industry body that regulates. At the same time, I am sure you must have invested between Rs. 2 crore to Rs. 20 crore in buying a flat or a home — and there is no regulator here, nor are there restrictions in terms of law that protect the consumer come across as effective.

I think it is a question of prioritizing. You want to protect the common man and it’s a very noble and correct objective. But my point is: protect where it hurts. He is being cheated every day on the real estate front. Why don’t we first have a real estate regulator? I am not saying don’t do this in financial services, but that is a much bigger area, the ramifications are many — but, nobody is focused on such aspects. Why is that so, I wonder.

The Other Side Of Money

Sudip Bandyopadhyay’s off-work mantras:

Options: Innovation Makes All The Difference

Business Barons: You spoke about a new mantra for successful investing?

BANDYOPADHYAY: We have seen in the Indian market a very distinct trend, and we’ve come up with a new product that we are pitching to HNI and mid-cap investors.

In the equity market, the cash volume has been coming down continuously and options have been moving upwards. Options, as a part of total turnover, about one and a half or two years back, used to be around 10-12%. Now it’s about 70%. Today, on an average, if there is a turnover of around Rs. 2 lakh crore in the market, out of that 70% is in options.

From last year onwards, we focused completely on options. What we have done is position our company as an option house, where we provide our customers with customized strategies to maximize their income through options — and, it’s completely different as compared to what anybody else is doing. Even today, nobody is doing it at a retail level in India.

Suppose you have purchased 1,000 shares of Hindustan Lever for Rs. 200 and obviously you are expecting it to go up and you are willing to hold it. What we are saying is to sell options for Rs. 300 so you will gain a premium on that. Any property you have today, you can use it in some manner. Suppose if you have a house, you can give it on rent; but when you buy shares as a retail investment, you are doing nothing with it. You are holding shares and expecting it to increase and fortunately if some day if rises only then you earn profit on your investment. Probably you are paying demat depository charges.

So what we are trying to do is make our customer understand that if they sell options every month on the shares they have in their demat account, they keep earning income. Just like in case of a flat, assume that it is your rent. Do the same thing with your shares also, and this is going very well. I also tell if a person is reasonably evolved, then you buy a put, sell a call, depending on the maturity of the customer. Nobody is following that strategy today at retail level which is helping us to move ahead of others and grow business, turnover and make money.

BB: Why does this make sense for an Indian investor?

BANDYOPADHYAY: End of the day, if you see financial services, why is everybody happy with a Kisan Vikas Patra or NSC? Simply because they double money within a term of five or six years so the customer is happy.

I can give you a strategy to buy shares of Hindustan Lever and if tomorrow the market goes down by 5000 points then you have a loss in your hand. I am not doing that. I am saying that you have Hindustan Lever, sell options on that, and start earning income. So I am ensuring that the customer is active and he makes money.

BB: When you start reaching out to retail customers, do you really find they understand this strategy?

BANDYOPADHYAY: My target client is a mid-income group-to-HNI. A true retail investor who will buy just 100 shares is not the target customer for this, simply because in F&O segment, the minimum lot was fixed around Rs. 2 lakh so the value of a single option contract is around 2 lakh. The example we used, Hindustan Lever, the lot has to be of minimum 1,000 shares, so the investor who has bought 100 shares of Hindustan Lever, for him the strategy doesn’t work. The person who has 1,000 shares, for him this strategy works.

If you have 1,000 shares, you can sell options and earn your income. The market is very huge now, 70% of the market is options now. There are a lot of contracts where the market is not yet fully liquid. There are about 10-15 scrips where there is enough liquidity in the first and second month. Third month onwards, liquidity slows down but our strategy is such that you don’t really get into the third and the fourth month.

BB: What happens if Hindustan Lever’s share price hits Rs 300?

BANDYOPADHYAY: Technically, your position will get squared up and you are still having the shares with you. In effect, you will earn profit if you sell those shares at Rs.300. But you are okay because you bought at 200. But what if the shares price does not grow in 3 months time and take 6 months or may be one year’s time to grow? So you can look at it as an earning income and you can also look at it as reducing the cost of your acquisition.

BB: Are these products more acceptable to the metro based investors?

BANDYOPADHYAY: There is a huge understanding of this concept even in tier II cities. If you recollect, once upon a time, there was a stock exchange at Kanpur and there were lot of trading. If you really ask me, I would say it’s not a question of place but it’s question of clients and that is pretty much the same everywhere, whether it’s Kanpur or Lucknow, Ahmedabad or anywhere. There is a section of population who will understand this everywhere and there will be a section that will not be receptive. This has got nothing to do with the location because trading does happen. People are familiar with broad concepts.