Zerodha, one of India’s largest online brokerage firms, has posted a more than 50% jump in both profits and revenue for the 2021-22 year, CEO Nithin Kamath revealed on Twitter.
Zerodha’s co-founder cited many reasons behind the significant growth in its investor base in the past two years or more, including – a bull market, volatility, IPOs, and a shift to working from home, among others.
Kamath stated that a large portion of Zerodha’s revenue came from active merchants and added, “The (broking) industry needs a steady stream of new active merchants even to maintain revenue.”
However, to get new and active traders, the market must remain bullish. In one of his tweets, Kamath said that if the stock market turns bearish, user growth also decreases, which leads to a decrease in the number of active traders and therefore revenue.
Moreover, citing the example of Robinhood Markets Inc, an American financial services company, Zerodha’s boss wrote that the company’s market capitalization has fallen to $9 billion from $80 billion. He wrote: “Robinhood’s stock price and financials over the past few quarters show how retail brokers’ performance correlates with market sentiment.”
Kamath said the drop in the mobile cap was directly proportional to the drop in new user growth due to the “sharp downturn in US markets.”
In the case of India, Kamath said his brokerage has reached a stage of stabilization in terms of new user additions and revenue. But if the markets go down, his company could have a similar fate as Robinhood. “I keep reminding myself and our team of all this to ease expectations,” Kamath concluded.