Zerodha, one of India’s leading discount brokers, is preparing for a significant revenue decline later this year due to upcoming regulatory changes, according to the company’s co-founder and CEO, Nithin Kamath.
In a recent blog post, Kamath outlined several challenges facing the firm, including new regulations from the Securities and Exchange Board of India (SEBI) set to take effect on October 1, 2024.
Kamath said that Zerodha is already experiencing a plateau in revenue and profit. He stated, “We are already seeing revenue and profit plateau, and we are bracing for a big revenue hit later this year. Sebi’s true-to-label circular will go live on October 1, 2024. We expect a 10% revenue dip.”
The CEO also expressed concern about potential changes to index derivatives regulations, which could have an even more substantial impact on the company’s earnings.
“Index derivatives today are a significant portion of our revenue, and any change will impact us,” Kamath noted, estimating that such changes could lead to a 30 percent to 50 percent reduction in earnings.
Another factor contributing to the expected revenue decline is the modification of Annual Maintenance Charges (AMC) under the new Basic Services Demat Account (BSDA) thresholds. Kamath explained, “We can charge full AMC from customers with a demat holding of ₹ 10 lakhs and more, as opposed to ₹ 4 lakhs today. Combined with us removing the account opening fee, this would be a meaningful drop in revenue.”
Other programs by Zerodha
Additionally, Zerodha‘s referral programme has been affected by new guidelines from stock exchanges that limit payouts to registered authorised persons only. This change has significantly reduced the number of referrers to the company.
Despite these challenges, Kamath maintains that Zerodha remains in a strong market position. However, he acknowledged that the company faces a difficult period ahead as it navigates these regulatory shifts.
The situation highlights the ongoing impact of regulatory changes on the fintech and brokerage sectors in India, with even established players like Zerodha feeling the effects of evolving industry standards.
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