Retail Investor Participation Declines as Eight of Top 10 Brokers Lose Active Traders in February

Market Correction, SEBI’s F&O Curbs, and Global Uncertainty Weigh on Investor Sentiment

Eight of India’s top 10 brokerage firms witnessed a decline in active investors in February 2025 as retail participants retreated from the stock market following five consecutive months of correction. Data from the National Stock Exchange (NSE) revealed that the downturn in market sentiment, coupled with regulatory restrictions on futures and options (F&O) trading, played a key role in the declining investor activity.

Among the leading brokerage firms, only HDFC Securities and Dhan managed to buck the trend and recorded a rise in active clients.

Groww Reports First Decline in Active Users Since March 2023

India’s largest brokerage house, Groww, saw its active investor count drop by more than 2.2 lakh in February, marking its first decline in active users in nearly a year. The Bengaluru-based firm, which launched direct stock investments in mid-2020, had approximately 1.3 crore active investors by the end of February.

Despite the dip, Groww continues to hold a significant lead over other brokerages, with a wide margin in user count. The firm is also preparing for an initial public offering (IPO), which could attract renewed investor interest.

Meanwhile, Zerodha and Angel One, the second and third-largest brokers, reported 79.5 lakh and 76.5 lakh active investors, respectively, as of February. In January, Groww, Zerodha, and Angel One had active investor bases of 1.32 crore, 81 lakh, and 78 lakh, respectively, indicating a widespread slowdown in retail investor participation.

Declining Active Users Across Leading Brokerage Firms

The drop in active investors was not limited to Groww. Other major discount brokers also recorded a dip in investor activity.

• Zerodha and Angel One saw declines of over 1 lakh active investors in February, marking the third consecutive month of decline for Zerodha and the second consecutive month for Upstox, India’s fourth-largest brokerage firm.
• Discount brokers, which rely heavily on F&O trading, were hit hard by recent Securities and Exchange Board of India (SEBI) regulations aimed at curbing retail participation in derivatives trading.
• SEBI’s crackdown on high-risk trading practices, coupled with multiple studies indicating that 90% of retail investors lose money in F&O trading, has had a significant impact on brokerages that depend on trading volumes.

Retail Investor Slowdown Impacts New Demat Account Openings

The declining investor activity was also reflected in new demat account registrations, which fell to a 21-month low.

• Approximately 22.6 lakh new accounts were opened in February, marking the slowest growth since May 2023 and the second consecutive month of deceleration.
• In comparison, January 2025 saw 28.3 lakh new demat accounts, down from 32.6 lakh in December 2024.
• The total number of demat accounts registered with NSDL and CDSL reached 19 crore in February, up slightly from 18.8 crore in January.

Market analysts attribute the decline in investor enthusiasm to multiple factors, including elevated valuations, a slowing economy, weak corporate earnings, and global trade tensions.

SEBI’s Regulatory Measures and Their Impact on Brokers

The SEBI’s ongoing push for stricter regulations on F&O trading has significantly impacted the revenue models of discount brokers.

• Many of these firms generate a substantial portion of their earnings from high-frequency traders and options traders, and with SEBI tightening rules, brokerages are facing a revenue squeeze.
• The brokerage industry is also preparing for additional financial pressures, including:
  • Higher trading taxes
  • Lower exchange rebates
  • Stricter restrictions on leverage and risk exposure
• Industry estimates suggest that most brokerage firms could see a 30-50% decline in topline revenue in H2 FY25.