Zerodha’s co-founder and CEO Nithin Kamath in a blog post said the company is facing a plateau in revenue and profits and is preparing for a significant revenue hit later this year.
Kamath pointed to new regulations from SEBI, which are expected to impact the brokerage’s core business operations starting October 1, 2024. "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".
Additionally, an upcoming regulation on index derivatives—currently a major source of revenue—could lead to a 30% to 50% reduction in earnings. "Index derivatives today are a significant portion of our revenue, and any change will impact us," Kamath wrote.
The Securities Transaction Tax (STT), also set to rise from October 1, will have minimal impact on options trading but will significantly affect futures trading, further straining revenue streams.
Kamath also highlighted changes to the Annual Maintenance Charges (AMC) under the new Basic Services Demat Account (BSDA) thresholds. "We can charge full AMC from customers with a demat holding of Rs 10 lakhs and more, as opposed to Rs 4 lakhs today. Combined with us removing the account opening fee, this would be a meaningful drop in revenue," he added.
Zerodha currently holds ₹5.66 lakh crore in assets under custody in its demat accounts, with customers sitting on unrealized profits of over ₹1 lakh crore. Despite the challenges, Kamath acknowledged the company's strong position in the market but underscored the tough road ahead due to the regulatory shifts.
Moreover, Zerodha’s referral program, once a driver of customer growth, has taken a hit due to new guidelines from stock exchanges restricting payouts to only registered Authorised Persons. This change, Kamath noted, will reduce the number of referrers from thousands to only a few registered partners, further affecting the company’s growth.