Zerodha, one of India’s largest online brokerages, has posted more than a 50% jump in both profits and revenues for 2021-22, CEO Nithin Kamath revealed on Twitter.
Zerodha co-founder cited multiple reasons behind the significant growth in its investor base in the past 2+ years, including–bull market, volatility, IPOs, shift to work from home, among others.
Kamath mentioned that a large part of Zerodha’s revenue came from the active traders and added, “Industry (brokerage) needs a steady influx of new active traders even to sustain revenue”.
However, to get new and active traders, the market should remain bullish. And, if the stock market turns bearish, the user growth also drops, leading to a reduction in active traders and hence revenue, Kamath said in one of his tweets.
Further, citing an example of Robinhood Markets Inc, an American financial services company, the Zerodha boss wrote that the market capitalization of the company has dipped to $9 billion from a high of $80 billion. “The stock price and financials of Robinhood over the last few quarters show just how correlated the performance of retail brokers is with market sentiment,” he wrote.
Kamath said the fall in m-cap is directly proportional to a dip in the new user growth due to the ‘sharp drawdowns in the US markets’.
In the case of India, Kamath said that his brokerage firm hit a plateau in terms of new user additions and revenue. But if the markets fell, his company might have a similar fate like Robinhood. “I keep reminding myself & our team of all of this to temper expectations,” Kamath concluded.