The stock market growth is poised to plateau following the euphoria of the last four years, which resulted in record participation from individual investors, and this would have an influence on the Bengaluru-based firm's growth prospects in the future years, according to Nithin Kamath, CEO of Zerodha.
"Zerodha's performance would be highly correlated with the performance of the markets, and given the euphoria in the last three to four years, it is difficult to continue with the same optimism for the next few years," Kamath said.
Since peaking at 85,000 in September, the BSE has fallen steadily over numerous trading sessions to roughly 77,500.
Kamath also commented on the flood of initial public offerings over the last year or two, saying that the trend of new generation companies joining the market is a very encouraging indication and will assist stimulate participation of more new generation retail traders in the ecosystem.
"While retail participation in stock trading has not decreased in the last six to eight months, things like the long-term impact of artificial intelligence on jobs must be monitored," he continued, cautioning about the overall job market and macroeconomic performance.
While the stock market's exuberance has driven the growth of new age discount brokers, recent regulation reforms on futures and options trading are expected to have a significant influence on their businesses.
Kamath expected a 30% impact on total orders on his platform and a 60% impact on futures and options trading.
Increasing competition
Zerodha, which was valued at approximately $3.6 billion in 2023, is facing stiff competition in terms of active users from venture-funded company Groww and Mumbai-based listed stock broker Angel One.
According to NSE data, as of October, Groww has over 12.5 million active traders, compared to 8 million for Zerodha and 7.5 million for Angel One.
"It is good to have multiple players growing fast in the same ecosystem, since the increased participation in capital markets will have a multiplier effect for the entire ecosystem at large," Kamath added.
In terms of financial performance, Zerodha remains the industry leader. It had a total revenue of Rs 8,370 crore and a net profit of Rs 4,700 crore in fiscal year 2024.
In response to market competition, Zerodha recently announced that account opening fees would be waived, increasing account opening rates by approximately 20%. According to Kamath, the company's active user base has remained relatively stable.
"There has been a huge increase in opening of accounts within the industry, and hope that in case of any possible downturn or lower growth in the markets, all the accounts opened continue to remain active in the long run," according to him. Zerodha is opening between 2.5 lakh and 3 lakh accounts every month.
The stock broker is developing new credit-related products to promote consumer engagement. Zerodha Capital, the non-banking lending arm of stock brokerage behemoth Zerodha, is ready to launch loans against mutual funds and loans against shares, two new secured credit products that would build on loans against securities, which it has been doing for a few years now.
The company is also planning to introduce margin trade financing as a product just for consumers who want it.
While practically every large broker offers this product, Zerodha prefers to keep it limited to some users due to the significant leverage required, which may not be suited for all types of retail consumers.
The company has already built up Rs 350 crore in assets under management and is regularly disbursing Rs 80 to 90 crore monthly. Approximately 7,000 consumers have accessed this product. Because it is a secured product, the loans are available at a cheaper interest rate than other unsecured loans on the market.
In 2018, the Reserve Bank of India gave Zerodha an NBFC licence. Aside from the credit business, the Bengaluru-based firm owns a controlling ownership in Zerodha Fund House, an asset management firm, and controls Rainmatter Capital, an early stage venture firm with a portfolio of over 90 businesses.
