Zerodha, the largest stock broker in India, anticipates a fivefold increase in revenue and profit for the fiscal year ending in March 2023. Nithin Kamath, the company’s originator and chief executive officer, anticipates a significant correction in the current fiscal year for the stock brokerage firm.

If the current volatility in public markets, caused by geopolitical conflicts that are affecting supply chains, recessionary fears, and interest rate hikes, along with a steady global macroeconomic downturn, continues, Kamath warned that Zerodha’s overall revenues could decline by almost 40% in FY24.

Market volatility may impact FY23 sales and profit growth, but expect 20%

“The revenue decline has not yet begun” (with the volatility). We will likely conclude the fiscal year (FY23 in revenue) 20% higher than the previous year. However, I am unsure if we will reach that number the following year,” he said.

ET reported earlier this year that Zerodha’s net profit increased by 87% in FY22 to Rs 2,094.3 crore from Rs 1,122.3 crore in FY21 and that its total revenue for FY22 was Rs 4,964 crore.

During the fiscal year that ended at the end of March, Zerodha also earned interest income from its investments (or profits) in fixed deposits or government securities, thereby increasing its annual revenue. This has also mitigated the firm’s revenue plateau from brokerage services compared to the increase in demand for brokerage services during the pandemic years.

“This March (2023) is the lowest month for new user acquisition since March 2020, but our aggregate market share has increased.” “This indicates that it is also detrimental to the market as a whole,” said Kamath.

“Over the past six months, it has been decreasing. The volatility is also causing existing consumers to trade a bit more, which is mitigating for the decline in active users,” he added.

Zerodha also provides customers with the option to invest in fixed income products such as government securities in order to avoid the turnover caused by stock investment losses.

A year of rectification

As a result of the disruption induced by global macroeconomic trends, a number of businesses specializing in modern technology have been forced to alter their strategies. Kamath of Zerodha stated that the company will not make “random” decisions to maintain revenue surges.

Recognizing that business will be affected “when the market experiences a significant decline in terms of participation,” Kamath stated that he will not be “forced to make arbitrary (changes) to prevent a revenue decline.”

Additionally, the company is anticipated to launch its in-house order management system (OMS) this year in an effort to eliminate its reliance on legacy systems.

The new OMS, named Enigma, will allow the company to send nudges to customers, thereby assisting them in making fewer financial errors, according to the 43-year-old founder.

The larger revenue decline also occurs at a time when several fintech platforms with large captive audiences, such as PhonePe, are solidifying plans to enter the broking business, even as retail participation in public markets declines.

Groww, which was funded by Tiger Global but was unable to complete a new funding round at the desired $5 billion valuation, saw its losses balloon to Rs 239 crore in FY22 despite generating Rs 350 crore in operating revenue.

“Some of the newer online competitors who have spent a great deal of money competing with us may have consumers, but they lack the AUM. One must conduct commerce in a credible manner.”

Noting that the advent of large platforms is crucial for market expansion as a whole, Kamath stated, “For some of the newer online competitors that have spent a lot of money competing with us, they may have the users, but they don’t have the AUM” (asset under management). One must conduct commerce in a credible manner.”

Currently, Zerodha has a clientele of approximately 11.2 million users, of which 6.4 million are active.

AMC on the horizon

Zerodha has received preliminary approval from the Securities and Exchange Board of India (Sebi) to establish an asset management company (AMC) and is currently awaiting final approval.

“There are no new observations, and we are merely awaiting the regulator’s ultimate approval. We will launch within two to three months of receiving approval, he said.

However, Kamath has made it abundantly obvious in the past that the AMC will concentrate on passive products, which account for a growing portion of the country’s total equity assets.

Kamath stated that the objective is to simplify investing for investors.

“It will be entirely passive, and the plan is to limit it to three or four funds. It is possible to be a thought leader in passive-only funds by keeping an AMC’s operations straightforward, as he explained. “It is a 10-15-year project,” he added, despite the fact that India is not yet a large enough market to create a significant passive business in terms of revenue.

Startup cold season and tech IPOs

The volatility of the public markets has prompted new-age technology companies, such as direct-to-consumer brand Mamaearth and hospitality giant Oyo, to reevaluate their listing strategies. Indian tech giants’ shares, including Zomato, Paytm, and Nykaa, have fallen drastically from their initial public offering price.

“As an entrepreneur, what matters is not what you say at an initial public offering, but what you say continuously. Because you must always set appropriate expectations,” said Kamath.

Additionally, the founder stated that, previously (on private markets), “overselling was rewarded.”

“However, after an IPO, underselling and outperforming are rewarded,” he said.

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