As Indian stock markets undergo a sharp correction, the impact is becoming evident in the broking industry. Nithin Kamath, Chief Executive Officer of Zerodha, highlighted a significant drop in trading activity, with volumes across brokers plunging over 30 percent.
"For the first time in 15 years, we are witnessing degrowth in business," Kamath wrote on X platform (formerly Twitter). He attributed this slowdown not just to market volatility but also to regulatory changes like the true-to-market circular.
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The 45-year-old Zerodha boss pointed out that the decline in trading volumes underscores the market’s limited depth, as most activity is concentrated among just 1-2 crore traders. The slump could have wider implications, including a potential shortfall in the government’s securities transaction tax (STT) collections. If the trend persists, he estimates STT revenues for FY25/26 could fall below Rs 40,000 crore—not even 50% of the Rs 80,000 crore being estimated.
The STT is a type of tax that is charged on the purchase and sale of securities like stocks, mutual funds, and derivatives on recognized stock exchanges in India. The STT is a direct tax, meaning that it is levied directly on the transaction value of securities.
"Across brokers, there's a more than 30% drop in activity. Combined with the true-to-market circular, we are seeing degrowth in the business for the first time since we started 15 years ago. This drying up of volumes shows how shallow the Indian markets still are. The activity is more or less among those 1-2 crore Indians," said Kamath.
Kamath's post comes just a day after the Nifty wrapped up its fifth straight monthly F&O expiry in the red, marking its longest losing streak in 29 years. The relentless sell-off, driven by weak corporate earnings, sustained foreign outflows, and rising economic uncertainty, has erased much of the market’s recent euphoria.
Investors who celebrated record highs merely months ago are now staring at deep losses. In February alone, the Nifty50 and Sensex have shed over 4 percent, with their declines from the September 27, 2024, peaks now exceeding 14 percent and 13.2 percent, respectively.
Such prolonged weakness is rare. The last time the Nifty suffered five consecutive months of losses was between July and November 1996. Before that, its longest losing streak stretched for eight months, from September 1994 to April 1995.
Read more: All sectoral indices trade in red; Nifty IT, Auto, Media, Metal plunge the most
In today's session, Sensex and Nifty tumbled over 1 percent on February 28, caught in a wave of broad-based selling as fears of a full-scale global trade war and concerns over a slowing U.S. economy rattled investors. All 13 major sectoral indices traded deep in the red, while the BSE Smallcap and BSE Midcap indices bore the brunt, sliding over 2 percent each. IT and financial stocks, where foreign investors hold significant stakes, accounted for half of Nifty 50’s losses.
Small- and mid-cap stocks, typically the hardest hit during market downturns, have taken a severe beating this year, tumbling over 14 percent and 19.2 percent, respectively. Despite the sharp correction, experts caution that valuations remain elevated, urging investors to tread carefully in this space.
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