Moneycontrol Pro Panorama | Trading drought

Higher taxation on options trading, stricter margin requirements, dampened trading activity.

Dear Reader,

India's discount brokerage sector faced a challenging year in 2025 as a confluence of regulatory tightening, subdued market performance, and persistently low volatility took a heavy toll on active participation. According to a Moneycontrol report, the industry witnessed a sharp contraction in its client base, with the country's four largest platforms—Groww, Zerodha, Angel One, and Upstox—bearing the brunt of the decline.

The total number of active clients across all brokerages fell by nearly 53.5 lakh during the year, dropping from 5.02 crore in December 2024 to 4.49 crore by December 2025. Remarkably, around 75 percent of this decline came from the four industry leaders alone.

Zerodha experienced the steepest erosion, losing approximately 12.68 lakh active clients over the course of the year. Groww, despite being the country's largest brokerage platform, saw a decline of nearly 10.32 lakh clients. Angel One reported a drop of around 9.96 lakh while Upstox's active client base shrank by roughly 8.09 lakh. Other notable casualties included Mirae Asset Capital, Sharekhan, 5Paisa Capital, Kotak Securities, Motilal Oswal Financial, PhonePe Wealth Broking, Finvasia Securities, Alice Blue Fin, and Fyers Securities.

While global markets scaled new heights in 2025, the Indian market delivered a modest return of 7.8 percent and failed to breach the previous high set in September 2024. Poor corporate earnings, uncertainty surrounding Trump's tariff policies, and evolving market regulations all contributed to the tepid performance.

The Securities and Exchange Board of India (SEBI) introduced a series of tighter regulatory measures that had a pronounced impact on market volumes. Higher taxation on options trading, stricter margin requirements, fewer weekly expiries, and elevated capital thresholds collectively dampened trading activity. These changes affected not only retail traders but also proprietary traders, who found fewer profit-making opportunities as the volatility index languished in its lowest quartile.

Veteran proprietary trader Adib Noorani observes that the current low volatility environment has created an unfavourable risk-reward landscape for proprietary traders. Even traditional arbitrage opportunities have become scarce as traders increasingly crowd into that space searching for viable trades during this low volatility regime.

The challenge is particularly acute because most traders typically employ short gamma strategies—selling options through various approaches—which struggle to generate compelling returns when volatility remains subdued. These strategies, which profit from market stability and time decay, offer limited upside in a low premium environment.

However, traders are adapting. If low VIX conditions persist, many are now shifting their focus to long gamma strategies, learning to position themselves to capitalise on the eventual volatility that may emerge from this extended period of calm.

Mid- and small-cap stocks failed to deliver appreciable returns during the year, further subduing retail participation. Although 2025 saw a surge in initial public offerings (IPOs), poor listing performances contributed to lacklustre post-listing trading activity.

Adding to the market's woes was relentless selling by Foreign Portfolio Investors (FPIs), who offloaded shares worth Rs 1.46 lakh crore in the cash market and now hold a record short position. Global uncertainties, fuelled by Trump's assault on international trade and the ongoing Russia-Ukraine conflict, kept foreign investors at bay.

Interestingly, while discount brokerages lost clients, traditional broking firms witnessed modest additions. This shift can largely be attributed to service quality concerns. During a year marked by frequent connectivity issues, discount brokers struggled to provide timely resolutions, relying on call centres that became overwhelmed when systems crashed nationwide. In contrast, traditional brokers offered dealers who could resolve problems instantaneously, proving their value when reliability mattered most.

While equity market volumes declined, trading activity in cryptocurrencies—particularly on platforms permitting options trading—surged. This trend underscores a fundamental truth that traders will gravitate toward wherever opportunities exist.

Looking forward, a revival in market volumes will likely depend on several key factors such as easing regulatory norms, the reintroduction of expiry-day trading in more instruments, rising volatility, and, most importantly, a sustained market rally. Only when these conditions align, can the industry expect investors and traders to return in meaningful numbers, breathing life back into India's beleaguered brokerage sector.

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