But now the industry is now facing its toughest test yet. With regulators tightening rules around the booming futures and options (F&O) market — the main engine of their growth — these once unstoppable brokers are staring at a structural reset. As Groww readies its Rs 6,632 crore IPO, investor enthusiasm is high, but the business model that powered India’s trading boom is suddenly being questioned.
The public issue, which includes a fresh equity raise of Rs 1,060 crore and an offer for sale by existing investors, including Peak XV Partners, Ribbit Capital, and Tiger Global, opens on November 4.
Regulatory headwinds hit the broking model
The latest tightening of rules in the F&O market has upended the economics of discount brokers. These platforms built their fortunes on low-cost, high-volume trading, with weekly index options accounting for most of their activity. However, as the Securities and Exchange Board of India (Sebi) considers further curbs—including limits on weekly expiries and higher entry requirements—brokers are staring at a structural reset.
Angel One, one of the largest listed players, reported a 50% year-on-year drop in consolidated profit to Rs 2,120 crore in the September quarter, marking its third straight decline. Revenue fell 20.7% to Rs 12,020 crore, with client additions down 42% and total orders dropping by over a quarter. The impact of Sebi’s measures has been swift and sharp.
Market leader Zerodha, which pioneered the zero-brokerage delivery model, has also seen its earnings come under pressure. Its brokerage revenues fell by as much as 40% due to the restrictions on derivatives. In a candid blog post, founder Nithin Kamath said the company might be forced to rethink its free delivery trading model if there is a further regulatory crackdown.
Options remain the lifeblood of retail derivative trading, generating volumes that keep low-cost brokers profitable. Without them, as is increasingly coming out in the commentary, the zero-brokerage model becomes hard to sustain.
Groww growth story faces its own test
Groww, despite its rapid rise and expanding customer base, has also begun to feel the pressure. According to analyst Nitin Jain of Bonanza, Groww’s IPO is being launched “under significant regulatory uncertainty,” with sentiment cautious across the sector. He noted that much of the broker’s growth over the last few years was powered by F&O volumes, which are now under scrutiny.
Groww’s brokerage revenue fell 18% year-on-year in the June quarter, while overall sales dropped 10%, with profit flattered by one-time items. “When adjusted for these, profit actually declined by 25%,” he said.
Nearly 62% of Groww’s broking revenue still comes from derivatives, exposing it to any further F&O restrictions. Jain estimated that even a 5% decline in F&O orders could reduce Groww’s revenue and profit by up to 4.8%.
Pivoting beyond broking
Facing these pressures, all major players are diversifying. Groww is betting big on margin trading facilities (MTF), with its MTF book growing eightfold in a year. Interest income from lending now contributes just over 3% of total revenue, still too small to offset the slowdown in trading volumes. The company has also expanded into mutual funds, wealth management, insurance distribution, and payments, but most of these ventures remain early-stage or loss-making.
Zerodha is also preparing for life beyond day trading. The company pivoted toward wealth management and long-term investing, including a platform that helps users manage their portfolios and retirement assets.
Angel One is following a similar path, increasing focus on advisory and lending services, while ramping up its digital ecosystem through personalised financial products.
Valuations and investor sentiment
Despite these challenges, Groww is seeking a premium valuation of 34–44 times FY25 earnings, according to analysts, compared with Angel One’s roughly 20x and Anand Rathi’s 25x.
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They say the valuation premium reflects its brand, tech-first model, and customer base, but acknowledge that the current environment could weigh on post-listing sentiment. “The broking industry’s high-growth era is giving way to a phase of adjustment,” said Jain. “Regulatory clarity will be key to how investors value these platforms going forward.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)