The Indian equities market has faced a severe downturn, with major indices witnessing sharp corrections. In the midst of this turmoil, Zerodha’s founder and CEO, Nithin Kamath, has raised concerns about the state of the broking industry, stating that his company is experiencing business degrowth for the first time in 15 years.
Market Correction and Declining Trading Activity
Kamath, in a post on social media platform X, noted that trading activity across brokers has dropped by more than 30%. He attributed this decline not only to market corrections but also to regulatory changes, particularly the implementation of the true-to-market circular.
“The markets are finally correcting. Given that markets swing between extremes, they can fall more just like they rose to the peak,” Kamath remarked, acknowledging the market volatility. He emphasized that this correction has resulted in a significant reduction in trading volumes, exposing the shallow participation in Indian markets, which largely revolve around just 1-2 crore traders.
Benchmark Indices and Global Economic Impact
The Nifty 50 has plunged nearly 15% from its peak in September, mirroring global market trends. The Indian stock markets experienced a steep fall on February 28, as the Sensex dipped 1.90% to close at 73,192.35, while Nifty 50 fell by 1.86% to settle at 22,126.35. The global economic landscape has played a significant role in this downturn, with U.S. President Donald Trump’s tariff war escalating tensions across financial markets.
Trump recently announced the imposition of 25% duties on imports from Canada and Mexico, effective March 4. Additionally, a 10% tariff will be levied on Chinese imports, with a potential 25% tariff on shipments from the European Union. These trade policies have fueled uncertainty, leading to a sell-off by Foreign Institutional Investors (FIIs) in Indian markets.
Broking Industry Under Pressure
The correction in stock prices and the reduction in trading volumes have had a cascading effect on the broking industry. Kamath highlighted that the average daily equity turnover on the National Stock Exchange (NSE) has plummeted by 42%, falling from its peak of approximately Rs 1.4 lakh crore to less than Rs 1 lakh crore. Similarly, options trading turnover has dropped by 46% from its all-time high.
For Zerodha, this marks the first instance of business degrowth since its inception in 2010. The brokerage firm, which has long benefited from India’s growing retail participation in the stock market, is now witnessing a contraction in its customer base and trade volumes.
Implications for Securities Transaction Tax (STT) Revenue
Kamath also warned that the decline in market activity could have serious fiscal repercussions for the Indian government. The Securities Transaction Tax (STT), a levy imposed on stock market transactions, is expected to witness a sharp dip. The Union Budget 2025-26 has projected an STT revenue of Rs 78,000 crore. However, Kamath believes that if the current trend persists, the actual collection could plummet by 50% to Rs 40,000 crore.
For context, the government has collected Rs 44,500 crore in STT in the ongoing financial year. If market conditions fail to stabilize, the shortfall in STT revenue could impact government finances, necessitating alternative measures to bridge the gap.
Tech Stocks and Market Sentiment
The downturn has not been kind to new-age technology stocks either. In recent weeks, 13 out of 32 tech startups tracked by Inc42, including Swiggy, Ola Electric, FirstCry, and MobiKwik, have hit fresh lows. Market experts predict that the correction could persist throughout the year, especially if macroeconomic indicators remain unfavorable.
Manish Jain, Chief Strategy Officer at Mirae Asset Capital Markets, commented on the situation, stating, “If the data set is bad, then a leg of price-wise correction is expected.” His warning suggests that investors should brace for prolonged market weakness.
Zerodha’s Financial Performance
Despite the recent challenges, Zerodha has posted strong financial results. The brokerage firm reported a profit of Rs 5,496.3 crore on an operating revenue of Rs 9,372.1 crore for FY24. However, Kamath has been cautious in his outlook, previously warning that 2024, while being a peak year for the industry, might soon mark the beginning of a slowdown.
The ongoing stock market correction has sent shockwaves through the Indian financial ecosystem, impacting both retail traders and brokerage firms. Zerodha, India’s largest brokerage by volume, is witnessing its first-ever degrowth, signaling that the bullish sentiment that has dominated Indian equities for years may be waning.
With global uncertainties, regulatory changes, and declining investor participation, the road ahead appears challenging for the stockbroking industry. As Kamath has stated, predicting the market’s future trajectory is difficult, but the signs point to continued volatility and caution in the coming months.