Zerodha, one of India’s top discount brokerages, has reported a ~40% decline in its brokerage revenue in Q1 FY26 (April–June 2025) compared to the same quarter last year.
In a blog post marking its 15th anniversary, Zerodha co-founder and CEO Nithin Kamath referred to the drop as “the risk crystallising,” and signalled that the firm might have to pivot its business model in response.
What Caused the Drop?
1. Regulatory Changes in F&O Segment
Much of Zerodha’s revenue comes from active trading in derivatives (Futures & Options). Recent regulatory shifts — such as increased Securities Transaction Tax (STT) on options, reduction of weekly expiries, and removal of exchange transaction charge rebates — have squeezed margins.
These changes have been in effect since around October 2024, meaning Q1 of FY26 is where the full impact has become visible.
2. Lower Market Activity & Investor Caution
Kamath noted that trading volumes and investor enthusiasm have declined. The platform also saw fewer new account openings in the quarter.
3. Margin Impact from Cost & Business Structure
Zerodha has historically avoided external investors and debt, giving it flexibility. But even that buffer may not suffice if revenue stress continues.
Financials & Positioning
- Zerodha says its brokerage revenue fell ~40% in Q1 FY26.
- In FY25 (the full year), revenues and profits were already under pressure, with a ~10–15% decline from previous highs.
- The company claims strong fundamentals: zero debt, a net worth of over ₹13,000 crore (as per internal metrics), and client assets that account for ~10% of India’s retail & HNI assets under management (AUM).
- Newer revenue verticals are being pushed: The Margin Trading Facility (MTF) book is reportedly ~₹5,000 crore (~5% market share).
- Zerodha also mentioned its loan-against-securities / Zerodha Capital business is gradually growing (₹430 crore book).
What Zerodha Is Considering: A Business Pivot
Given the revenue drop, Kamath warns that Zerodha may have to introduce brokerage fees on equity delivery trades, a service it has historically kept free. Entrackr
The options business may be under further threat if regulators decide to curb or eliminate weekly options altogether.
Essentially, Zerodha may need to lean more heavily on non-derivatives revenue streams or introduce new monetization models to survive under tighter regulatory constraints.
Implications for Investors & the Broking Sector
- For traders: Possible future changes in commission structure may affect costs, especially for equity delivery.
- For competition: Other brokers may also feel similar pressure — especially those relying heavily on F&O business.
- For regulation: This serves as an example of how regulatory tweaks in derivatives can cascade into revenue shocks for major players.
- For Zerodha’s credibility: The firm’s strength lies in its independence and long-term thinking; how well it adapts under pressure could define its next phase.
Outlook & Key Watchpoints
- Will Zerodha actually start charging on delivery trades?
- How fast can non-derivative revenue lines grow to offset the loss?
- How will investor activity and market recovery affect the scenario?
- What further regulatory changes may come to derivatives markets?
In Summary
Zerodha’s brokerage revenue down 40% in Q1 FY26 is a wake-up call for the brokerage business model in India. Regulatory headwinds and slowing trading volumes have exposed the vulnerabilities of a derivatives-focused revenue stream. While Zerodha’s foundations remain strong, the company signals it must evolve — possibly pivoting to new revenue models or restructuring pricing strategies — to navigate through this volatile phase.
