Hello Robo: How robo-advisory firms are revolutionising financial services in India (2024)

“Greed, for lack of a better word, is good. Greed is right, greed works,” goes the famous line said by Michael Douglas in the Hollywood movie Wall Street. The dialogue has assumed cult status ever since it was said in the 1987 movie, and has been widely and frequently reproduced in various forums on investing in the stock markets. Greed—and fear—are probably the two most common human emotions that are talked about in the stock markets even as many believe that trading is best done without any ‘emotional guidance’ at play. Keeping out emotions or biases while picking up the best stock or sector was not possible till a few years ago, as the analysis was done by humans. But the idea to keep out emotions was always in existence. Finally, an industry emerged that showed human emotions the door while enhancing the speed of analysis and, more often than not, at a lower cost structure as well.

Robo-advisory has been in existence for a few years and while it is already a huge industry globally, it is picking up fast in India as well. Simply put, robo-advisory refers to the digital platforms that provide financial advisory services based on completely automated, artificial intelligence (AI)-driven software with almost zero human intervention. While the code is developed by humans, the parameters or filters that it uses to pick the right stock or even suggest replacing an existing stock in one’s portfolio with another is based completely on factors related to valuations, governance and performance, among other things.

In other words, human bias or emotion is not a factor that it considers. Typically, these bots or platforms ask a few questions when one registers. This is basically done to understand one’s risk profile and investment goals depending on which the AI recommends the right stocks, or in many cases, mutual fund schemes or even exchange-traded funds (ETFs). In a consultation paper issued way back in 2016, capital markets regulator Securities and Exchange Board of India (Sebi) defined robo-advisors as “wealth management companies providing an automated support for all financial advisory services without any human intervention... Be it trading, investment, portfolio rebalancing or tax saving, the robo-advisors can help investors without any human interference. It works with pre-defined algorithm and analytics, and calculates the best returns and plans for each individual as per his requirements and preferences.”

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The growing clout of robo-advisory businesses in India can be gauged from the fact that a recent report by German market data intelligence firm Statista stated that the total assets under management (AUM) of such entities in the country would touch $13 billion in the current year. More importantly, it stated that the assets are expected to grow at a CAGR of nearly 43 per cent between 2021 and 2025 with the AUM likely to touch nearly $54 billion by 2025. The number of Indians who use robo-advisory services is also expected to touch nearly 330 million by 2025. Just to put things in context, the AUM of robo-advisory firms in the US is currently pegged at $1 trillion, as per the report by Statista.

While the Indian projections may look a bit ambitious, there is ample room for growth as robo-advisory is still at a nascent stage in India and the asset size is just a fraction of what some of the developed countries have witnessed. “Many of the first-time investors are young, tech-savvy individuals who believe in DIY [do it yourself] rather than seeking advice for their personal financial management and that is where robo-advisors come in,” says Deepak Ahuja, a wealth manager and also an angel investor in the fintech space. The current generation wants to take out the middlemen from all their transactions, he adds.

While investors may want to remove the middlemen from the arena, robo-advisory appears to be removing analysts as well even as it continues to analyse every company on various parameters.

Analysis sans the Analyst

MarketsMojo was founded seven years ago. Today it claims to be India’s biggest robo-advisory firm with a market share of 30-40 per cent, and works with some of the country’s most well-known broking houses including Motilal Oswal Financial Services, HDFC Securities, Angel Broking, Axis Securities, and Geojit Financial Services, among others. The company analyses every listed company not just in India, but also in more than 20 markets globally. But it does that without an analyst. “We don’t have a single analyst in our team. We have quants based on fundamental and technical analysis that analyse stocks in 21 markets globally from India,” says Mohit Batra, Founder and CEO, MarketsMojo. “Humans have limitations in coverage. Even the largest broking firm will have only around 150 companies under coverage. We analyse the listed equity space, which is 60 per cent of the global market capitalisation. We look at 500-600 formulas per company. There are four main factors—quality of the stock, valuations, current financial trend and technical.”

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Interestingly, while robo-advisory firms may well have eliminated the need for an analyst to analyse company data, the foundation of their business model is gathering a humongous amount of data on the individual investor before the first advice can be given. It is also driven by the fact that Sebi regulations make it mandatory for every advisory firm to do a proper risk profiling of the individual before advising on investments or financial planning.

At the same time, not every robo-advisory firm recommends stocks or a basket of securities to an investor. Mumbai-based Tavaga has only six ETFs in its advisory matrix and suggests investments in the funds in different proportions depending on the risk profile and goals of the individual. “One doesn’t need expensive baskets. Just set up your goals; the robo will do your risk profiling in an automated manner and will suggest exchange-traded funds that are much more cost-effective than even direct mutual funds,” says Nitin Mathur, Co-founder and CEO, Tavaga, who earlier worked as an analyst with firms like Jefferies, Societe Generale, and Edelweiss Securities. “This is the right approach for a mass-market product rather than something focussed on the privileged class. We operate on a flat fee model of Rs 600 per year per individual.”

Millennial Backing

It is indeed a fact that the young population and the new investors pouring into the markets are looking at tech-backed solutions for all their needs. Whether it is the stupendous growth in the number of clients of discount broking or the growing share of mobile trading in the markets, there are enough metrics to show that technology is easily embraced by the new-age investor. And as robo-advisory is completely tech-driven, there are enough takers for the service that is quick to dispense, available 24X7, and comes at various price points to suit one’s budget and requirement.

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“Technology is preferred by the millennials who are adopting robo-advisory because of the ease and convenience offered in terms of onboarding and transacting,” says Vivek Damani, a Sebi-Registered Investment Advisor, also known as an RIA in market parlance. “Technology has reduced the transaction cost. In some platforms, technology also provides insights based on an individual’s portfolio, thereby helping in decision making.”

Transaction costs may not be an important parameter for many who prefer to trade through the discount broking platforms as most such firms have zero broking charge for delivery-based trades in the cash segment. Advisory, however, comes at a cost, but going by the revenue of robo-advisory firms, one can say that investors are ready to shell out money if they feel the recommendations that they are getting are worth the spend. MarketsMojo, for instance, has three different packages on offer, starting from Rs 9,000 per year. “We have a million registered clients. On revenues, we have grown 10X in the past one year and we are self-funded. Our profit margins are 90 per cent. Last year our portfolios generated 140 per cent return while the CAGR over the last 4-5 years is 47 per cent,” says Batra, adding that his company has an 80 per cent success rate whether it is a buy or sell recommendation.

Aide to Broking Firms

Robo-advisory has emerged as a big support for broking firms, which, due to various reasons, have limited research capabilities. A traditional broking firm, with its team of analysts, can cover a couple of hundred companies at best even as there are more than 3,000 companies that are traded on a daily basis in the Indian stock market. While every research analyst of a broking firm can track a few sectors and the leading companies within each sector, a bot can dissect the numbers of each company, irrespective of the sector, in a flash. As a result, many broking firms tie up with robo-advisory firms to enhance the reach and depth of their research offerings as bots can help the traditional firms scan more companies and dish out a higher number of recommendations.

“Bots can help provide intelligent analytics to a human advisor who will be better equipped to ascertain which client would be more interested in a certain kind of stock recommendation,” says Siddhartha Khemka, Head–Retail Research, Motilal Oswal Financial Services. “Otherwise, it could be a case of cold calls, only to realise that most investors are not interested in the stock picks that they are being offered. Bots help in targeted advisory. It gives the right advice at the right time to the right person.”

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Interestingly, this can be viewed as a hybrid model as well wherein a human advisor or an analyst is aided by algorithms at the back-end, and the front-end advisory is dealt with a human touch. There are many in the industry who strongly feel that there is space for all modes of advisory to grow, including a hybrid model, which encapsulates the best of both worlds. “Both models will have their own limitations. In fact, the limitation of one model may be an advantage for the other. Therefore, I strongly believe that both will coexist and maybe a hybrid model will be a game changer,” says Damani.

Tavaga, which has just six ETFs in its arsenal, also works with quite a few leading broking firms including Zerodha, Upstox and TradeSmart, and is in talks to tie up with a few more in the near future.

R. Venkataraman, Chairman, IIFL Securities, believes the role of robo-advisory for wealth creation has become important as it allows financial planning for millions of retail customers instantly. “The new digital-native investors have rapidly adopted robo-based advisory services and it is likely to reach the large investor community soon. It is, therefore, imperative for broking and wealth management firms to build their own capabilities as well as partner with fund-based, equity-focussed, and comprehensive wealth management-focussed robo-advisors to better service investors,” he says.

The Numbers Game

According to data from Tracxn, a start-up data intelligence company, there are a total of 85 robo-advisory firms in India currently, with Mumbai and Bengaluru accounting for the highest number of such ventures at 27 and 23, respectively. However, the smaller towns have also seen their share of such firms as the acceptability and popularity level of robo-advisory has risen over the years. A few ventures have emerged from towns such as Indore, Jaipur, Kochi, Panchkula and Pune, among others.

While the past couple of years have seen a huge rise in the demand for robo-advisory—primarily due to the overall buoyancy in the stock markets and the entry of first-time investors—the breakout period was around 2015 and 2016 when the bulk of the existing robo-advisors mushroomed. Nearly 50 such firms were founded in those two years alone. But while many of these firms have been in existence for a few years, it is only in the past couple of years that this technology-driven advisory space has seen a boom as increasing numbers of investors have overcome the scepticism that any new technology or product faces in the initial years of its evolution.

“Any new technology, especially ones that improve on human intervention, is often met with scepticism initially. It is called algorithmic aversion,” says Gaurav Rastogi, Founder and CEO, Kuvera, a robo-advisory platform for financial planning and investment. “Think about the early days of digital maps or driverless cars. Eventually, users realise the benefits and start trusting the new technology, leading to algorithmic appreciation. We are somewhere in the middle of this journey for robo-advisory.” Rastogi’s firm has 1.1 million investors registered on its platform with total assets under administration of Rs 28,000 crore.

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Meanwhile, there are more than 1,300 RIAs in the country, according to Sebi data. Maharashtra accounts for the largest share with around 520 RIAs, followed by Madhya Pradesh with 153 and Karnataka with 132 RIAs. States like Gujarat, Delhi, Tamil Nadu, Haryana and Uttar Pradesh also have a sizeable number of RIAs. “We have not even seen the tip of the iceberg when it comes to advisory. India needs thousands of offline advisors and robo platforms with millions of clients. There is a genuine need,” says Mathur.

Traditional or Bot?

This is a kind of perennial dilemma for several investors who are ready to invest in stocks or mutual funds and even know that the execution can be done for free—on various digital platforms. However, they are not sure where to go for getting the right advice. “A traditional advisor will ask you a ton of questions and then feed the data into a system to better understand your risk profile and asset allocation, among other things. They will likely use standard or proprietary models that do the portfolio or goal analysis, but the result would be delivered by the advisors themselves. Robo-advisory automates the entire process,” explains Rastogi.

In a similar context, Ahuja believes that even while robo-advisors are gaining traction in the past few years, they aren’t close to replacing human financial advisors as they are more suited for beginners or new investors with limited assets and do not offer a full range of benefits to replace traditional human financial advisors. “When you compare a robo-advisor to a human financial advisor, the key difference is a human advisor’s ability to offer emotional guidance,” he says.

“We all have heard the story of the hare and the tortoise. And we have also heard the modern version, which concluded that if the race route is treacherous, then neither may finish without getting support from the other,” says Damani, who believes that India is a large country and given the under-penetration of the investment culture, both robo-advisory and traditional advisors can happily co-exist.

No system is perfect and it would appear that the same holds true for both robo-advisory and the friendly neighbourhood traditional advisor, and one will have to wait and watch to know if the two live happily ever after. After all, that is how every story ends, right?


As an expert or enthusiast in the field of financial technology and robo-advisory, I bring a wealth of knowledge and experience to the discussion. I've closely followed the evolution of robo-advisory platforms globally, keeping abreast of trends, regulatory changes, and industry dynamics.

Now, let's delve into the concepts mentioned in the article:

  1. Greed and Fear in Stock Markets: The article begins with a reference to the famous line from the movie Wall Street, emphasizing the influence of human emotions like greed and fear in stock markets. These emotions have historically played a significant role in investment decisions.

  2. Robo-Advisory Overview: The article introduces robo-advisory as a digital platform providing financial advisory services through automated, AI-driven software, minimizing human intervention. It emphasizes the role of robo-advisory in eliminating emotional biases from investment decisions.

  3. Parameters for Stock Selection: Robo-advisors use parameters such as valuations, governance, and performance to make stock recommendations. The focus is on objective data analysis rather than subjective human emotions.

  4. SEBI's Definition of Robo-Advisors: The Securities and Exchange Board of India (SEBI) defines robo-advisors as wealth management companies providing automated support for financial advisory services without human intervention, covering aspects like trading, investment, portfolio rebalancing, and tax-saving.

  5. Robo-Advisory Growth in India: The article highlights the growing popularity of robo-advisory in India, citing a report by Statista predicting substantial growth in assets under management (AUM) and the number of users. It attributes this growth to young, tech-savvy investors who prefer a DIY approach.

  6. MarketsMojo as a Case Study: MarketsMojo is presented as India's biggest robo-advisory firm, claiming a substantial market share. Notably, the firm relies on quantitative analysis (quants) for stock evaluation, eliminating the need for traditional human analysts.

  7. Role of Data in Robo-Advisory: While robo-advisors eliminate the need for human analysts, their business model relies on gathering extensive data on individual investors to conduct proper risk profiling, complying with SEBI regulations.

  8. Different Models of Robo-Advisory: The article discusses the diversity in robo-advisory models, ranging from platforms recommending individual stocks to those suggesting exchange-traded funds (ETFs). It notes that some robo-advisory services, like Tavaga, operate on a flat fee model.

  9. Millennials and Tech-Driven Solutions: Robo-advisory's popularity is attributed to the tech-savvy millennial population seeking convenient, 24/7, and cost-effective solutions for their financial needs.

  10. Support for Broking Firms: Robo-advisory is highlighted as a support system for traditional broking firms with limited research capabilities. Bots are seen as capable of analyzing a larger number of companies, complementing the efforts of human analysts.

  11. Hybrid Model: The article suggests a hybrid model where human advisors are aided by algorithms at the back-end, combining the strengths of both human and AI-driven advisory.

  12. Rise of Robo-Advisors in India: Tracxn data is cited to indicate the rise of robo-advisory firms in India, with Mumbai and Bengaluru being prominent locations. The breakout period for robo-advisory is mentioned as around 2015-2016.

  13. User Trust in Robo-Advisory: The article acknowledges initial skepticism towards robo-advisory but suggests that as users realize the benefits, trust in this technology is growing, drawing a parallel with the evolution of other technologies like digital maps or driverless cars.

  14. Traditional vs. Robo-Advisory: The perennial dilemma of choosing between traditional advisors and robo-advisors is discussed. While robo-advisors are praised for automation and cost-effectiveness, traditional advisors are seen as offering emotional guidance, leading to the conclusion that both models can coexist.

In summary, the article provides a comprehensive overview of the robo-advisory landscape in India, exploring various facets, from the impact of human emotions in investing to the growth and potential challenges of robo-advisory platforms.

Hello Robo: How robo-advisory firms are revolutionising financial services in India (2024)
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