Why Bengaluru-based Smallcase is betting big on thematic investing to outperform the market

Online equity investing platform smallcase lets investors buy stocks portfolios and ETFs related to specific themes and strategies for higher returns.

Equities are an investment option that can get you higher, faster returns, but has significant risks involved. There are also multiple challenges such as stock discovery, lack of understanding, market timing, portfolio management that make investing in the stock market cumbersome.

Three IIT-Kharagpur graduates - Vasanth Kamath (27), Anugrah Shrivastava (28), and Rohan Gupta (27) – aim to change the way urban India invests.

In 2015, they founded smallcase technologies - written in lower case - an online investment platform that allows investors to invest on “themes”. The idea was to move away from investing in individual stocks to a portfolio. What sets it apart from investing in individual stocks or mutual fund units is that it comes with the convenience of not having to track individual stock performances, and gives you ownership of a stock as against the case with mutual funds.

smallcase offers theme-based baskets – be it “Incredible India” or “The GST Opportunity" - with stocks listed in different proportions to offer the best returns.

Getting started

After graduating from college in 2013, Vasanth was one of the first employees of data platform Traxcn. He joined as an analyst and researched more than 20,000 startups until the startup bug bit him. Around the same time, Vasanth’s senior, Anugrah, who had worked with him for a college cultural festival, was working with Japanese financial company Nomura, building and working with equity structured products.

Anugrah was keen to build something more diverse.

Vasanth’s batchmate, Rohan, was then with Goldman Sachs on platforms for the US markets. Their interest in building a financial platform brought the three together.

The three, who together had the necessary skill sets, in July 2015, decided to build a new financial instrument for trading. Their idea involved creating thematic portfolios for retail investors, and they started up with smallcase.

smallcase?

Written in lower case letters, smallcase technologies' platform creates, or allows users to create, and manage a theme-based portfolio. The platform was launched in July 2016, a year after the trio started up.

smallcase baskets include “Magic Formula”, “Smart Cities”, and “Rising Rural Demand”, and are portfolios of stocks based on trending market ideas that can gain if the bet on the themes plays out.

Vasanth explains, “These could be a list of stocks of companies that would gain with the GST move or a portfolio of stocks that will do well with rising internet penetration. So, there could be multiple such themes.”

The final trade, however, is not made on the smallcase platform, but on partner brokerage Zerodha’s platform. The smallcase platform claims to have close to Rs 1,200 crore worth of equities and ETFs traded on Zerodha's platform in the last 500 days.

The founders say that moving forward, they will partner with five other digital brokerages. 

So why can’t a brokerage do the same thing?

Vasanth says: “They can, but problems start with tracking because users will have to individually track these stocks, make notes, and see how the portfolio - or ‘smallcase’ - is performing. Our platform not only allows users to create their own smallcase, but also helps them track performance on an overall level. This is healthier and better for the end investor.”

According to the company, close to 40,000-50,000 smallcases have been created by users until now, while only 68 have been created by the company.

Discovery of stocks

The Bengaluru-based startup also has a stock discovery web platform called Screener, which allows users to find targeted stocks based on their growth and performance.

With close to 100,000 users, Screener allows you to discover and research high-performing stocks and curate them on the smallcase platform. The founders explain that smallcase is a static website where the value lies in the portfolios that are curated. Users can either get on the website and create their own used cases, or invest in existing ones.

On the Zerodha trading platform, users can go to the watch list in the stock widget, which is powered by smallcase technologies, and start investing in smallcases apart from individual stocks. For other brokerages, the company plans to rely on callout banners and other ideas along with mutual funds and other investment options.

The 24-member smallcase team wants to expand its coverage of equity stocks and add other assets, including fixed income and gold by mid-July, this year.

The founders, however, state that the platform doesn’t push customers to complete transactions on a particular brokerage.

“We will have transparent brokerage rates on the payment or landing page, offered by all brokers. We don’t take any commission for that,” Vasanth says.

Stacking up

At present, Vasanth claims that the platform has close to 1.5 lakh registered smallcase users (including Screener) on its platform. Approximately 30,000 of them have transacted on the platform.

The average investment made by each investor cumulatively on each smallcase stands at Rs 50,000. The company claims that an average of 3.8 smallcases are bought by every user on the platform. The platform sees close to 78 percent repeat rate (who have made more than one transaction on the platform).

smallcase has a different commission arrangement with each broker. Zerodha pays the platform a certain sum for each smallcase sold on its platform. However, Vasanth says claims that this arrangement might vary from brokerage to brokerage.

smallcase has raised a seed round of investment from a slew of investors.

Looking into the future

Speaking about product strategy, the company wants to rope in registered advisors for portfolio advice on the platform. This will increase investors’ exposure to the financial instrument and allow them to make customised smallcases.

smallcase plans to provide a CRM-based SaaS solution to advisors, helping them make different smallcases for clients and help track their portfolio growth.

On their B2C strategy, the company wants to make Screener’s content and community platform the go-to destination for understanding stocks and making investments.

“The platform will provide information to the community so they can learn more about stocks,” Vasanth adds.

The founders are positive that they will have close to half a million transacting users and add more investment options on the platform by the end of this financial year.

However, retail investors in India were only 4.45 percent of the entire Indian population, as of last year. But the industry believes that growth continues to be reassuring.

Arun Thukral, the MD and CEO of Axis Securities, says close to 59.1 million retail investors are estimated to have invested in equities as of July 2017. He adds that mutual funds with their systematic investment plans, led these investments. In FY18, the mutual fund industry added close to 8.32 lakh SIP accounts each month with an average size of around Rs 3,200. This is an improvement from 6.26 lakh SIP accounts added each month on average in FY17.

That said, the market still seems to be small. But smallcase is sure it has made the right bet!