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Policy · Financial Services

Zerodha faces structural challenge due to increased STT on F&O trading

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Date
Company
Zerodha
What it does
discount brokerage platform
Kind
Policy
Sector
Financial Services

What they do

Zerodha is a discount brokerage platform that relies heavily on retail derivatives trading for revenue

What happened

The Indian government increased the Securities Transactions Tax (STT) on Futures & Options (F&O) trading in Budget 2026, which will raise transaction costs…

Why it matters

This policy change could reduce trading volumes and impact Zerodha's revenue, as it earns modest revenue per trade and depends on high trading intensity

The details

  • The Indian government announced an increase in the Securities Transactions Tax (STT) on Futures & Options (F&O) trading in Budget 2026.
  • STT on Futures was raised from 0.02% to 0.05%, while Options premium and exercise STT were increased from 0.1% and 0.125% to 0.15% respectively.
  • The changes will take effect from April 1, 2026, and aim to reduce speculation in derivative markets.
  • Zerodha, along with other discount brokers like Groww and Angel One, relies heavily on F&O trading for revenue.
  • The increased STT will raise transaction costs for retail investors, potentially reducing trading volumes.
  • Zerodha CEO Nithin Kamath stated that the policy change could lead to a 50% drop in FY26 topline if regulatory structures are further tightened.
  • Zerodha's revenues fell by 40% in FY25 to INR 8,500 Cr, partly due to new regulatory structures and transaction costs.

The bigger picture

  • The government aims to reduce speculation in derivative markets and protect small retail investors from losses.
  • The STT hike is part of a broader effort to curb excessive speculation and manage systemic risk in the derivatives market.
  • The move follows previous regulatory changes by SEBI, including expiry-day restrictions and stricter compliance demands.
  • Zerodha and other discount brokers face a structural challenge as their business models depend on high trading volumes and thin margins.

About the business

  • Zerodha is a discount brokerage platform that provides trading and investment services to retail investors.
  • It earns revenue through brokerage fees and transaction-based charges, with a significant portion coming from Futures & Options (F&O) trading.
  • The company operates primarily in India and serves millions of retail investors.
  • Zerodha's business model relies on high trading intensity and a large user base to maintain profitability.
  • The company has faced revenue declines in recent years due to regulatory changes and increased transaction costs.

The deal

Type
policy

Founders

  • Nithin Kamath, CEO and co-founder

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