Zerodha, one of India's leading discount brokers, is preparing for a significant drop in revenue later this year due to upcoming regulatory changes, according to the company's co-founder and CEO, Nithin Kamath.
In a recent blog post, Kamath outlined several challenges facing the firm, including new regulations from the Securities and Exchange Board of India (SEBI), which are set to take effect from October 1, 2024.
Kamath said Zerodha is already experiencing stagnation in revenue and profit. “We are already seeing stagnation in revenue and profit, and we are prepared for a big drop in revenue later this year. SEBI's true-to-label circular will go live on October 1, 2024. We expect a 10% revenue drop,” he said.
The CEO also expressed concern about potential changes to index derivatives regulations, which could have an even greater impact on the company's earnings.
“Today, index derivatives are a significant part of our revenue, and any change will impact us,” Kamath said, estimating that such changes could result in a 30 percent to 50 percent reduction in revenue.
Another factor contributing to the expected revenue decline is the revision of annual maintenance charges (AMC) under the new Basic Services Demat Account (BSDA) threshold. “We may charge full AMC from customers with demat holdings,” Kamath said. 10 lakh or more, as opposed to 4 lakh today. Even with the removal of account opening charges, this would be a meaningful drop in revenue.”
Other Programs by Zerodha
In addition, Zerodha's referral program has been affected by the new guidelines of the stock exchanges, under which payments are limited to registered authorised persons only. This change has led to a significant decrease in the number of referrals to the company.
Despite these challenges, Kamath believes that Zerodha is in a strong position in the market. However, he acknowledged that the company faces a tough phase ahead to deal with these regulatory changes.
The situation highlights the ongoing impact of regulatory changes on the fintech and brokerage sectors in India, with even established players such as Zerodha feeling the effects of emerging industry standards.