Zerodha CEO Highlights Declining Trading Activity, Regulatory Impact, and Market Weakness
As Indian stock markets face a steep correction, the impact on the broking industry is becoming increasingly evident. Nithin Kamath, CEO of Zerodha, has sounded the alarm on the declining trading activity, warning that the government’s Securities Transaction Tax (STT) collection for FY26 may not even reach 50% of its estimated target.
Kamath revealed that for the first time in 15 years, Zerodha is witnessing degrowth in business, as trading volumes across brokers have plunged more than 30%. He attributed this downturn not just to market volatility but also to regulatory changes, particularly the true-to-market circular issued by SEBI.
STT Revenue Could Fall Below ₹40,000 Crore in FY26
Kamath estimated that if the current market trend persists, the government’s STT collection for FY26 could fall below ₹40,000 crore, which is less than 50% of the projected ₹80,000 crore.
“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,” Kamath stated.
What is the Securities Transaction Tax (STT)?
The STT is a direct tax levied on the purchase and sale of securities such as stocks, mutual funds, and derivatives on recognized Indian stock exchanges. Since its introduction in 2004, STT has been a key revenue source for the government, especially during bull markets when trading activity is high. However, a prolonged downturn in market participation could severely impact these collections.
Stock Market Under Pressure: Nifty & Sensex Extend Losing Streak
Kamath’s warning comes at a time when the Nifty 50 has just completed its fifth straight monthly F&O expiry in the red, marking its longest losing streak in 29 years. This sustained market decline has been fueled by:
- Weak corporate earnings across key sectors.
- Sustained foreign portfolio outflows due to global risk aversion.
- Fears of a full-scale global trade war impacting investor sentiment.
- Concerns over a slowing U.S. economy that could affect global liquidity.
Nifty & Sensex Performance in February 2025
- The Nifty 50 and Sensex have fallen over 4% in February alone.
- From their September 27, 2024, peaks, Nifty and Sensex are now down 14% and 13.2%, respectively.
The last time Nifty saw five consecutive months of losses was between July and November 1996. Before that, its longest losing streak lasted eight months, from September 1994 to April 1995.
Sectoral Sell-Off: Small and Mid-Cap Stocks Hit Hardest
On February 28, 2025, markets faced a broad-based sell-off, with Sensex and Nifty tumbling over 1%. All 13 major sectoral indices were in deep red, while:
- BSE Smallcap Index dropped over 2%.
- BSE Midcap Index declined by more than 2%.
- IT and financial stocks accounted for half of Nifty 50’s losses, due to high foreign investor holdings in these segments.
Small and Mid-Cap Stocks Face Brutal Correction
- Small-cap stocks have plummeted over 14% in 2025 so far.
- Mid-cap stocks have lost a staggering 19.2% year-to-date.
Despite this correction, experts caution that valuations still remain elevated, urging investors to tread carefully in this space.
What’s Next for Indian Markets?
As trading activity continues to decline sharply, it raises concerns about market liquidity and depth. The STT revenue shortfall will also be closely watched, as it could impact the government’s fiscal planning and revenue projections for FY26.
Market participants will be keeping an eye on:
- Regulatory changes affecting trading activity.
- Foreign portfolio investment trends.
- Global macroeconomic conditions, including U.S. monetary policy and geopolitical risks.
- Corporate earnings performance in upcoming quarters.
Investor Takeaway: Brace for Continued Volatility
With the market undergoing its worst losing streak in nearly three decades, investors should expect continued volatility in the near term. As trading volumes dry up and STT revenues take a hit, the focus will be on whether regulatory adjustments or policy measures can help stabilize market sentiment.
For now, caution remains key, and long-term investors should focus on fundamentally strong stocks while navigating this uncertain market phase.
