Stock Doctors

With more and more tech-savvy millennials looking to invest in the stock market, algorithm-based fintech firms could be the next big thing

When you think of the stock market, words like uncertainty, risk, and ambiguity immediately pop up. And rightly so, investing in equities is not for the faint-hearted. Investors in India have always been sceptical of investing directly in the stock market, preferring avenues like fixed deposits or mutual funds where close to 40% of the country’s investments are parked. With equity penetration remaining a negligible 3% over the years, it is this stark opportunity that fintech firms such as MarketsMojo, MoneyWorks4me and Capitalmind are eyeing. Each of them use algorithmic platforms to provide information to investors to help manage their equity investments.

Mohit Batra and Joyson Thomas, the former co-founders of Moneycontrol, launched MarketsMojo in March 2015 by investing Rs.6.5 crore of their personal savings. Thus, MarketsMojo came out with a website not only to help interested investors track their portfolios, but also giving them insights by providing five-year financial data for all listed companies. When the duo stepped out with the idea, they knew that there was already a ‘clutter of information’ in the market and presenting all of that would confuse the investors further. Hence, they decided that a five-year period would be an ideal time frame to backtrack the data.

“Over the last 15 years, investors haven’t had actionable information on companies that they can access directly. Predominantly there has been a middle layer consisting of fund managers or brokers, who analyse a set of information which then gets passed on to investors. Even that information is made accessible to a privileged few depending on the size of their investment portfolios. We wanted to change all that through MarketsMojo,” explains Batra, co-founder and CEO. Here is how it works. MarketsMojo, through its algorithms runs close to 400 formulae on the financials of every listed company which not only looks at the immediate quarter performance but also backtracks the last five-year performance. This five-year performance analysis takes into consideration the company’s size, growth, profit and loss statements, balance sheet analysis, shareholding analysis, return analysis, the performance of the company within the industry, its corporate governance, etc. The proprietary formulae are related to the company’s fundamentals and are in-built within the software. Once the data is in, the algorithm picks up the right parameters and churns out the results for various formulae. 

The bulk of the data is sourced directly from the exchanges — BSE and NSE and the companies are ranked on three main parameters. The first one represents the rating of the company within the industry on four factors — growth, size, efficiency and corporate governance. The second parameter represents the current valuation of the company which is measured using three ratios namely the company’s PE, EV/EBIDTA and its PE growth. The third one tracks its financial performance, both in the latest quarter and over a five-year period. To make all that intimidating data simple, MarketsMojo systematically narrows down this data analysis in three simple colour dots — red, yellow and green, where red means that the company financials are not in the best shape, yellow indicating that the financials are improving but not there yet and green meaning the company’s financials are in excellent health. Any fluctuation in performance is captured by the changing colours from red to orange to green or vice versa.  “Any investor can just look at the research that we are simplifying through these three dots and take an informed decision while investing,” explains Thomas. Investors who are interested in digging out more information on a particular company can simply swipe right to look at the detailed analysis. The website sees over 15,000 visits on a daily basis, creating over one lakh page views. Around 50,000 portfolios are registered with MarketsMojo, out of which 85% are from India. “Getting users on the website is not difficult. It is about how many of these users are coming back, how much time are they spending on the website and the number of sessions they complete,” says Batra. He then adds that on an average, an investor spends nine minutes on the website while an average investor completes 6-7 sessions in a week. 

If Batra and Thomas were old market hands, Sreeram Thiagarajan and Raymond Moses, co-founders of MoneyWorks4me were running a business consulting and training company in Pune. They never planned to get into this until they had a bad experience investing in mutual funds and unit-linked insurance plans using the services of a MNC bank in 2008. They realised that they were just two among the thousands of investors who are grappling with equity market investments. So they launched MoneyWorks4me in November 2009 to bring some method to the madness and make the whole process of stock investing a little less overwhelming for beginners. Similar to MarketsMojo, they play on the idea of colour coding to break down their analysis on stocks. Their website’s ‘Decision Maker’ tool helps investors identify the right stock by tracking its 10-year financial data and colouring it green for ‘Very Good’, yellow for ‘Somewhat Good’ and red for ‘Not Good.’ They also calculate the fair price of each stock, which is called MRP using the discounted cash flow method to find out if the stock is undervalued or overvalued vis-a-vis the current market price. They also calculate the MRP of Nifty and Sensex to find out if the
entire market is undervalued
or overvalued. 

The company does not work with brokers and sources its data from Ace Equity and Capitaline. “Our hybrid model combines the best of fundamental analysis required for long-term investing and the use of technology to effectively manage the portfolio. The algorithm uses results of all analysis and tools to recommend investment decisions,” says Moses. The website currently caters to 1,250 subscribers and 150,000 registered users. In the coming years, MoneyWorks4me wants to offer users a robo-advisory product that will be linked to an online trading platform like Zerodha to enable investors to build and manage a wealth-creating portfolio. They also plan to offer mutual funds as part of their portfolio in addition to Nifty ETFs and Liquid Bees.

Different strokes
Since the information provided by online sites can be very similar, all the players are working hard to create differentiators that would appeal to investors. For instance, MoneyWorks4me goes a step ahead and answers four prominent questions for an investor — whether it is the right time to buy, is the stock in consistency with the portfolio, is it the right price and how much money should an investor ideally allocate to that stock. MarketsMojo believes in covering every listed company through their analysis while MoneyWorks4me restrict their advice and analysis to about 165-170 stocks only.  

Bengaluru-based Capitalmind, on the other hand, wants to be the Motley Fool of India. Their website provides information and detailed reports on economy, bonds and gold apart from equities. It sources numerical data from public sources like stock exchanges, RBI, finance ministry, etc. They send regular newsletters to their subscribers with suggestions on what they can do with their portfolio, be it futures, options, stocks or bonds; or just how to generate cash flow. “We provide a range of investment opportunity analysis which has something for every kind of investor. You get access to the tools we use for building our own model portfolios where we’ve generated over an average return of 30% over the last few years,” says Deepak Shenoy, founder of Capitalmind, which sees around 5,000 visits per day on its website and clocks a revenue of Rs.85 lakh. The website has a team of seven people who analyse and curate the acquired data. In the coming years, it plans to leverage on its research skills and turn into an SEBI approved advisor by 2018.

Show me the money
Each of these three portals monetise their offerings through subscriptions. Capitalmind has annual and quarterly subscription plans at Rs.1,667 and Rs.2,667 respectively for a month. After the subscription, users receive 3-5 premium posts on a weekly basis which have members-only access. MoneyWorks4me has further broken down its B2C model. Users can select a pack of Top 50, 100 and 150 (Nifty) stocks for which they get access to the right price and right allocation including e-mail, SMS or app alerts for Rs.6,999, Rs.10,999 and Rs.14,999 respectively. MarketsMojo has been providing its services free to the end consumer. Their revenue comes from integrating their offering with financial services firms and media houses to analyse customer portfolios for them. MarketsMojo has tied up with Kotak Securities, Bloomberg Quint, Motilal Oswal and Geojit Securities. In the case of Kotak, their portfolio analyser will be offered to Kotak’s existing high networth consumers and subsequently to retail customers. When a seasoned investor looks for information on MarketsMojo’s website, he can also transact through Kotak. “It’s a win-win situation both for us as well as the investor. On one hand, we get the opportunity to take stock market investing to serious investors who are looking for information. On the other hand, the investor gets in-depth research and platforms powered by Kotak Securities to invest in stocks,” says Kamlesh Rao, CEO, Kotak Securities. MarketsMojo plans to launch a subscription model in the next month by allowing consumers to invest in mutual funds and insurance or apply for loans through MarketsMojo and charge the end user a service fee for the same. Till now, it has clocked a revenue of Rs.6-7 crore and expects to grow it to Rs.12-13 crore by the end of next year driven by its strategic partnerships and the launch of its subscription model. 

The biggest advantage that these online portals have is that they remove human bias. “The holy grail is that we cannot go wrong with data. Everything is in the system,” says Rao. Shenoy, too, echoes this sentiment. “There is no risk in being online. People cannot expect printed content to be relevant one month later, especially in a rapidly changing environment like the stock market. Hence, the risk is really with the offline players,” he says. Already, stock market transactions are increasingly being done online. Kotak Securities is a witness to this trend. “Currently, 70-80% of our customers are online and they contribute around 50% of our brokerage income, on one year rolling average basis. We only see this number increasing,” says Rao. With more and more tech-savvy millennials looking to invest in the stock market, there is definitely more space to grow for algorithm-based fin-tech companies.