Zerodha to offer investment in US stocks in next quarter through GIFT City

Nithin Kamath, founder and CEO of Zerodha

India’s largest stockbroker by revenue Zerodha will offer US stock market investment by next quarter, founder and CEO Nithin Kamath has said.

“A lot of people tagged me on social media and asked about the US investing thing. We are working on it, and we should have something in the next quarter. It is a product launch,” Kamath said in an Ask Me Anything session with Zerodha founders and top management on YouTube.

The Bengaluru-based discount broker has, so far, shied away from the US investment product, even as multiple brokerages such as Angel One, INDmoney, JM Financial, Axis Direct, HDFC Securities, Kuvera and 5paisa offer the facility.

“It has been a long-pending thing. We now have the requisite regulatory clarity through GIFT City. We are trying to build a simple and seamless experience for users in the backend as well as in the frontend,” Zerodha CTO Kailash Nadh said, adding the company has worked on a whole series of technology and product “things”.

Trading slowdown

The development comes as Zerodha's topline and net profit declined for the first time in more than a decade. Its FY25 revenue and profits fell 15 percent in FY25 after multiple regulatory changes, including the futures and options (F&O) trading rules, hit the business.

Net profit fell to Rs 4,200 crore in FY25 from Rs 5,500 crore in the previous fiscal. Its revenue came in at Rs 8,500 crore, down from Rs 10,000 crore.

FY 26 could see an even more dramatic decline of 40 percent in revenue from FY24, the company said in an annual blog post.

Not the first attempt

This is not the first time that the discount broker is talking about offering investment in American market. In 2020, Kamath said Zerodha was planning to offer investments in US stocks through the platform but it was taking longer due to COVID-related disruptions. Zerodha would have to partner with a US broker to make it possible.

Kamath had also mentioned remittance regulations as one of the challenges at the time. GIFT City route possibly made the process simpler and seamless.

However, it is not clear why the company did not launch such a product. A couple of months after COVID shutdown, the Indian market saw unprecedented retail participation. Groww, Zerodha, Angel One and Upstox saw their customer base and revenue grow manifold.

The GIFT City route

There are two primary platforms in GIFT City that facilitate international stock investments — India INX's Global Access and NSE-IX's US stocks Unsponsored Depository Receipts (UDRs). India INX is the subsidiary of Bombay Stock Exchange.

The Foreign Exchange Management Act (FEMA) treats GIFT City as an international territory for financial transactions much like cities like Dubai and Singapore.

All the financial services, such as banking, equity markets and insurance, are regulated by a single unified regulator, the International Financial Service Centre (IFSCA).

Hit regulatory ceiling

Groww used to allow its consumers to invest and trade in US stocks until January 2024.

Moneycontrol reported that the firm stopped onboarding due to complications within the remittance process and high Tax Collected at Source (TCS) of 20 percent on investments of more than Rs 7 lakh in foreign stocks or mutual funds.

Earlier, there were a couple of ways in which Indian stock brokers made this possible. One was by partnering with US brokers, while the other method was through Indian mutual funds investing in US stocks.

However, most mutual funds stopped accepting new investments after they hit the Reserve Bank of India’s (RBI) limits on foreign investment, which capped individual fund houses' overseas investment at $1 billion and the overall industry’s at $7 billion.