Artificial intelligence (AI) is entering every sphere of existence, including stock trading, where it is taking on the role of registered investment advisors (RIAs), analyzing market trends, and predicting price movements.
For investment tech startup LotusDew Wealth and Investment Advisors, the growing interest in the stock market couldn’t come at a better time. The number of unique registered investors in the National Stock Exchange (NSE) exceeded 100 million in August this year. Between January 2023 and September 2024, demat accounts grew by 54% to 17.1 crore.
Hyderabad-based LotusDew takes a technology-driven approach to wealth management by modernizing the role of RIAs, offering tailored financial guidance and stock analysis. However, traditional RIAs often rely on manual processes for fundamental analysis and market trend assessment, which can be time-consuming, labor-intensive and prone to human biases.
LotusDew, on the other hand, automates deep data analysis to create curated stock baskets. The startup says its tech-focused model has generated 54% annualized returns in five years, attracted more than 25,000 lifetime customers and grown assets under management 200 times in three years.
The company was part of YourStory’s 2024 Tech30 cohort of India’s most promising startups.
Impeding asset management
Abhishek Banerjee and Prachi Deuskar founded LotusDew in 2019, advancing the company’s approach to wealth management with combined expertise in finance and technology.
Abhishek brings over 15 years of experience in fund management and multi-asset quantitative strategies, including key roles at Franklin Templeton, MN, and Goldman Sachs. Prachi Deuskar complements this with a decade of academic experience, having worked as an assistant professor at the Indian School of Business and the University of Illinois at Urbana-Champaign. A chartered accountant, she is an MBA graduate from IIM Bangalore and holds a PhD in Finance from NYU Stern School of Business.
The duo launched the first product in August 2019, six months after founding LotusDew.
“We started with small-cap stocks, then moved to micro-caps, and now we are applying our model to SME (small and medium enterprise) stocks as well. There are no products in these segments and we aim to be the first to launch solutions for them,” said CEO Abhishek Banerjee.
However, being a new person came with its own challenges and was not a distributor because trust plays a big factor in asset management. “Distributors (like Sanokase) used to say, ‘Come back when you cross Rs 500 crore (in AUM)’ but how do you cross without distribution?”
Although LotusDew’s products are usually sold online, some investors call the founders at their offices and ask for formal presentations.
Early success came from personal connections and grassroots efforts. “Our first shot came from local customers in Hyderabad. A landlord whose house I was going to rent became a major investor after visiting our office at the Indian School of Business campus.”
LotusDew’s 22-member team uses proprietary datasets and AI-driven strategies to create portfolios, focusing on board governance, global investor behavior, and institutional disclosures. Its listed venture capital basket analyzes data points such as board composition, tax litigation history and educational background of directors to assess a company’s governance and potential growth.
“This product offers investors similar returns to venture capital in their portfolios but with the liquidity benefits of traditional investments,” he claims.
Using a combination of NLP (Natural Language Processing) and fuzzy logic, LotusDew assesses the background of board members. “We look at factors like what colleges they went to and where they worked. This helps us score the governance quality of small companies,” Banerjee explains.
“These non-traditional indicators are difficult to manipulate and provide a clear view of a company’s trustworthiness,” he adds.
The company also monitors the investment activities of 8,000 global institutional investors. “We analyze public disclosures to understand their level of confidence, especially in terms of changes in their fund size,” he notes.
Small hat advisor
Operating in the liquid alternatives space, LotusDew competes with established firms like Deepak Shenoy’s CapitalMind, Wright Research, and Premji Invest-backed Dezerv but differentiates itself with a technology-driven approach and headstrong immersion in micro-cap and nano-cap equities.
Micro-cap equities are companies with very small market capitalizations, typically between $50 million and $300 million.
These companies are often in small or niche industries and are traded on small exchanges or over-the-counter markets. Investing in micro-cap equities can offer high growth potential but comes with high risk due to limited liquidity, limited regulatory oversight, and small operating scale.
Nano-cap equities are also small, with market capitalizations below $50 million. These stocks are generally highly speculative and have very limited trading activity, making them suitable primarily for experienced investors who understand the risks.
“We focus on non-balance-sheet indicators such as the reputation of board members or precise tracking of the activities of institutional investors,” Banerjee explained.
LotusDew’s AI-powered strategies enable it to operate in areas that traditional asset managers find cost-prohibitive. “In the SME space it would be very expensive and time-consuming to analyze all the data manually,” says Banerjee, adding that the use of AI will make asset management affordable for retail investors.
Operating model
LotusDew works in both advisory and brokerage models. In the advisory model, clients receive portfolio recommendations for a fixed fee. On the brokerage side, the company offers managed portfolios with a minimum investment requirement of Rs 50 lakh.
“Currently, we manage disclosed and undisclosed assets worth an estimated Rs 1,000 crore,” Banerjee said. However, the structure of the advisory model, where the startup charges a fixed fee and does not mandate clients to disclose assets, makes it challenging to determine accurate figures. The disclosed AUM stands at around Rs 350 crore while the undisclosed portion is estimated to add another Rs 650 crore.
The firm has two SEBI licenses – one for investment advisory and the other for brokerage – offering curated equity baskets through subscriptions and managed portfolios in its brokerage business.
The startup is actively expanding its intellectual property to acquire new licenses and expand its portfolio offerings. LotusDew also plans to launch an alternative investment fund.