The regulation overhang
The Indian stockbroking industry has gone through a strong boom over the past three years, largely driven by retail investors betting on F&O trades. Discount brokers like Groww, Zerodha, Angel One, and Upstox became household names by making trading cheap, fast, and accessible through mobile apps. But this retail frenzy also caught the eye of Sebi, which grew concerned about the surge in speculative trading.
As a result, Sebi has effected a series of steps, which included curbing expiry days, raising entry requirements and imposing position limits. There has also been talk about further measures of doing away with weekly expiries. Although, there is no official word on it yet, Sebi chief Tuhin Kanta Pandey has earlier mentioned about a consultation paper in this regard. These measures, while good for long-term market health, could dent short-term trading volumes and directly hit brokers’ revenue.
“Groww’s IPO is indeed overshadowed by regulatory uncertainty,” said Nitin Jain, Senior Research Analyst at Bonanza. “If Sebi goes ahead with F&O curbs, the impact on volumes could be meaningful since the broking model still heavily depends on derivatives activity.”
The timing is tricky. Peers like Zerodha have already reported a 40% decline in quarterly broking income and thinner margins due to regulatory changes.
How much is Groww exposed?
Despite its strong fundamentals, Groww is not immune to the slowdown. The company’s brokerage revenue fell 18% YoY in Q1FY26, while total sales dropped 10%. Its reported profit looked impressive, but analysts say the improvement came partly from one-off items like the reversal of incentive payouts. After adjusting for that, underlying profit actually fell around 25%.Roughly 62% of Groww’s broking revenue in FY25 came from F&O, though that dependence is slowly declining. The company has started diversifying through margin trading, mutual funds, lending, and wealth management — but these newer lines still contribute a small share of total income.Jain explains that even small changes in derivative trading volumes can affect earnings. “A 5% drop in F&O orders can drag Groww’s revenue and profit by up to 5%,” he said. “So until regulatory clarity emerges, short-term volatility in earnings can’t be ruled out.”
According to Prashanth Tapse, Research Analyst at Mehta Equities, regulatory tightening is not necessarily bad news. “While these rules might hurt brokers’ near-term profits, they will make the market healthier in the long run,” he said. “It will shift focus from short-term speculation to sustainable, informed investing — which will ultimately benefit serious platforms like Groww.”
Diversification drive gaining pace
To reduce this concentration risk, Groww is rapidly expanding into new areas. Its margin trading facility (MTF) business — which allows customers to borrow funds to buy stocks — has grown nearly eight times in the past year, though it still makes up just 3% of total revenue. The company also plans to use Rs 152 crore from the IPO proceeds to invest in cloud infrastructure, strengthening its digital backbone for future products.
It is also venturing deeper into wealth management. Recently, Groww acquired Fisdom, a mutual fund and financial advisory platform, in a bid to cross-sell investment products and diversify revenue sources. The company says more than 57 lakh users already use more than one wealth product, which has helped raise its average revenue per user (ARPU) to Rs 3,339 in FY25, up from Rs 2,520 in FY24.
Still, analysts caution that these new businesses will take time to scale. “Diversification efforts are encouraging, but they can’t yet offset the potential decline in trading income,” Jain noted.
Valuation and investor sentiment
At the upper end of its Rs 95–100 price band, Groww’s IPO seeks a valuation of Rs 60,000 crore, implying a price-to-earnings (P/E) multiple of 34–44x FY25 earnings. This is higher than traditional brokers such as Angel One (20x) and Anand Rathi (25x), reflecting its technology edge, brand strength, and scale.
While some investors see this as justified, others fear the valuation leaves little room for error, especially with Sebi rule changes pending. “Sentiment will remain cautious until regulatory matters are clarified,” said Jain. “But the company’s focus on long-term diversification could help it weather the storm better than peers.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)