Personal Finance

In The Hot Seat With Forbes Advisor India: Dhiraj Relli

Dhiraj Relli is the Managing Director and the Chief Executive Officer of HDFC Securities, the stock brokerage services subsidiary of India’s largest private bank in terms of market capitalization HDFC Bank.

Started 20 years ago, HDFC Securities helps investors trade in asset classes such as equity, gold, debt, currency derivatives and real estate. To become a registered user of HDFC securities, you will have to first open a savings/current account and demat account with HDFC Bank.   

Relli has been with HDFC Securities since 2008 and is currently overseeing all aspects of the company’s institutional, retail business and operations. 

Over the last two decades, he has been focused on banking, wealth management and the financial services space as the country head of branch banking at Centurion Bank of Punjab,  and he held various posts with ICICI Bank.

In his free time, Relli enjoys participating in marathons, monsoon cycling and cooking.

In a conversation with Forbes Advisor India, Relli spoke about why India should be hungry for risk capital and why he advises one should arrive at their asset allocation only after carefully profiling their risk.

How is the stock brokerage industry evolving in India?

I think the first point to note is that the industry is at the inflection point of growth trajectory. 

We’ve seen that in the last few months, there has been an exponential growth of new investors participating in direct equities, particularly, investing directly to the stock exchanges. We’ve seen the evolution of the mutual fund industry in the last few decades in India, though, they still have a long way to go even in the mutual fund penetration. Direct equity is one such space that was underpenetrated. Probably less than 5% households invest in equity and within that direct equity, a minuscule fraction of less than 2% of Indians who probably have taken an exposure in direct equity. So that way, you know, it’s an inflection point. 

We do believe that the financialization of savings is one thing which will play out in the next five to 10 years in India. So far in India, investors have been investing in commodities like gold, silver and largely when it comes to financial assets, they’ve been investing into fixed deposits. Now, they have realized that the interest rates in India are now in the low single digits. Earlier, it used to be in double digits or off late in high single digits. So somewhere they were getting some real returns, but now they’re not getting real returns. 

The other thing is that the excess of financial products have increased significantly with the advent of smartphones, technology and simpler options. 

I think what we need to do is to leapfrog in this industry from a pure transaction or an execution platform to a multi-asset platform. Stock brokers should cater to direct equity, but also they should help investors, and when I say investors and savers, I mean people who can invest even a INR 1000 or a INR 1 crore, irrespective of their appetite. 

We should be able to provide them a multi-asset platform that is simple, easy to execute and where they can get different asset classes according to their risk appetite and returns expectations. So, that way I think we have miles to go in the financial services distribution as well as the stock brokerage space. 

What is the dramatic shift that has helped Indians understand the importance of investing more and consequently saving more?

The Jan Dhan-Aadhaar-Mobile trinity has brought about a dramatic shift. The Pradhan Mantri Jan Dhan Yojana was more for financial inclusion in the country and it addresses the bottom of the pyramid. Aadhaar and mobile have impacted all possible segments of the customer. 

Today, if you have to onboard a customer, through Aadhaar, you can quickly onboard a customer, and their journey is complete and they can quickly open a complex account like a trading account where up to 40 signatures had to be done to open a demat account and a trading account. Now it has reduced to a completely online proposition and, even in the pandemic environment, the industry was able to onboard so many customers. Aadhaar is a very big enabler to onboard new customers, which was a big bottleneck and a very cost-ineffective proposition to onboard that customer. 

Most of the customers access data through mobile only. Not everyone owns an iPad or a laptop. And in office, trading sites are not allowed in any case and you can’t function. The mobile handset and low data costs have been big enablers for customers. 

There are still challenges such as not having a singular Know Your Customer (KYC), which is used by businesses to establish the identity of their clients, yet. My ask from the regulators and the government would be that we make KYC simpler and singular so that one KYC can be used across all products and services, both financial and nonfinancial. That would make onboarding simpler. 

From opening a bank account, to buying a life insurance policy, opening your demat account, all can have a singular KYC.

Now we have linkages of Aadhaar with savings accounts, mobile phone as well as your PAN number. So these linkages give you a singular identity. As long as companies are masking Aadhaar, which is happening across financial institutions, you link all the information, you mask it and we are good to go. 

I do believe that we should be prepared for some small accidents, which happen even in the physical environment. 

In India, the narrative for the last few decades has been that we have a demographic dividend, India is a young country, we will reap in our demographic dividend benefits; how will you do that? How long we can keep talking about potential, potential and potential only. We have to somewhere translate this potential into real action and real scale and that can happen only by enablers like Aadhaar.

We are a diverse country, both in terms of linguism and geography. The more we talk about technology and digital, the more it would become one nation. 

What is your vision for the capital markets space in the coming five years? 

The capital markets space is an under penetrated industry, for sure. Whatever we could achieve in the last two and a half decades, from that we will see up to 2x growth in the next five-years growth and 3x growth in the next 10 years in the capital markets sector both direct equity as well as in the mutual fund industry. 

Total assets under management of the mutual fund industry is INR 25 lakh crore, which is ⅕ or 20% of banking deposits in India. With financialization of savings, more and more investors would invest in the financial products. And we will see significant growth in the participation in the direct equity as well as capital markets. The enablers would be technology and simplification of products and that would bring in the scale. 

In financial services as a whole, I do believe there is opportunity to penetrate more into the wallets of the customers. There is still an unorganized market, an unorganized lending space, there are still a lot of unorganized alternatives like chit funds and savings and physical assets. 

That’s where we will see a significant shift happening. Public sector banks to private sector banks, there will be shifting market share. 

Insurance is another interesting space. The penetration levels of insurance in India are abysmally low. And there aren’t many many players who are offering long-term products. So that’s where I think they have an opportunity to offer long term propositions. 

I think the National Pension Scheme is another piece that has picked up a lot in the last year. So the shift of the pension liability from the government to the Pension Fund Regulatory and Development Authority (PFRDA) is something that is going to scale significantly in years to come. 

My ask from the government is to make taxation simpler. They rolled out an alternate tax system last year and they keep changing the tax from long-term capital gain to short-term capital gain and so on. 

India needs risk capital, we should be hungry for risk capital. If we need to create jobs, if we need to scale up we need to optimize, if we need to encash the demographic dividend, we need more risk capital. The risk capital should be encouraged by the way of simpler taxation. I don’t say don’t tax the gains on the risk capital but make them simpler. 

Your learnings throughout your tenure in the financial services space?

The most important learning I have is that you must have a clear segregation of your short term and long term objectives. The mistake most of the investors and savers do is that when they have short term funds, they try to get into speculative products and when they have long-term funds, they park into risk-free products like fixed deposits. They should do exactly the opposite. 

When you have more time horizon in hand and you can deal with the volatility, you should look forward to investing the same funds in higher-risk products like equity. Because you can bellwether the short-term volatility then.

Second learning is that you must understand your risk profile and your return expectations. Higher returns come with higher risk. If someone is telling you, you can get higher returns on lower risk, it is factually incorrect. So, the higher the return, the higher risk exists. 

My learning in the last two decades has also been that technology has its own role to play but relationship orientation plays a significant role in the life cycle management of your customers. If you understand your customer well, then you have more wallet share of the customer and customer loyalty than a patchy engagement. So it’s not only in India but outside of India too that the brick and mortar culture has its own relevance. 

As far as my individual learning is concerned, I think self-disruption and looking at the new trends, aligning yourself with the changed environment or pre-empting the changes in the environment is something I always do. You cannot have old architecture and still win customer loyalty. 

What inspires and empowers you to invest your energy in the financial services industry?

It’s my own resolve to be successful and define what is success to me matters more than anything else. 

I don’t believe that one should seek motivation. When you get to senior levels, people are looking at you for motivation. 

I would like to suggest to youngsters that they must always maintain a learner’s profile. Whatever you have achieved, whatever you have learned so far, everyday there are new propositions, new products, new technologies coming. So one has to maintain a learners profile to stay relevant and to leapfrog. That’s something I have been doing. 

And above all, I love to travel a lot. I have travelled to different parts of the world with the objective to observe. You get so much learning by observing different industries, different products, different trends. different geographies. So I think we have to learn by observing what’s happening around us and that empowers me. 

I never focus only on financial services. I would look at the non-financial services space to actually draw inspiration for financial services. 

What would be the one thing that you’d like to change about the way India invests and saves? 

Please do your risk profiling and arrive at your asset allocation and please maintain it.

We’ve seen that different asset classes give different returns and in different time horizons. For example, in the last year or so, we’ve got a significant step up in returns in gold as an asset class and if you haven’t invested in gold, you’ve missed a chance. So, asset allocation though is traditional and old school, is still relevant and will remain relevant.

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