With reduced activity on speculative trading and decreasing number of Retail onboarding in upcoming months.
How do you plan or strategize to sustain the upcoming 2/3 years?
We are seeing Retail brokers losing confidence like HOOD…? how does Zerodha plan to comb around it.?
I am getting asked about this quite a bit, and hence a longish answer. 
The last two years (2020 to early 2022) have been quite spectacular for brokerage businesses around the world in terms of user and revenue growth. A whole new type of audience entered the markets, triggered by greed and the idea of easy money propagated on social media. The current drawdown in the markets may be a realization that there isn’t any easy money to be made, especially for those in the US and those trading Crypto where the excesses were lot more than in India.
India has outperformed significantly, and I think one of the main reasons is because of the very little leverage in our ecosystem today. What you are seeing in the US and in Crypto is mostly leverage unwinding and hence such sharp falls. I had shared about this recently.
https://twitter.com/Nithin0dha/status/1536303989092130816
But that doesn’t mean that somehow India can escape all of this, we will eventually end up following the same direction as the global markets. While markets haven’t fallen as much, our markets aren’t going up either, and this has already led to the slowdown in new user growth. Around 30 to 40% at the industry level. As the freebies and account opening incentives go away, user growth will fall even further.
There’s quite a big drop in equity trading volumes. F&O volumes and intraday equity tend to be high when there’s volatility. If the volatility, drops the F&O and intraday equity, the drop in volumes will be more pronounced.
How is Zerodha positioned to weather a potentially long winter?
We are in a good place as a business, even if this winter is long, we will most likely have no issues as a business. This is mainly because, we have no debt, are profitable with high gross margins, a runway of over 10 years and no investor obligation to grow fast. What the 10 years runway means is that even if our revenues went to 0 (which is practically impossible), we will be able to run the business with the current operational costs and without needing any additional funds for the next 10 years. And this runway has been accumulated not through investor funding but profits over the last 12 years of running the business, the profits in the last two FY have been spectacular compared to the rest of the years.
The reason we have such a large runway is that we haven’t gotten carried away with the excesses of the last two years. We have, instead of going hammer and tongs on new hiring, using the work from home opportunity to improve the efficiency of the business. We were ~1100 people on the team at 2 million customers pre-COVID, we are ~1100 team at 10 million customers today. And this while also improving the customer support experience. Our average customer ratings are up over 30%, wait time on phone support is less than 1 min, and ticket response is less than 1 hour for most of the queries we get. We have benefited significantly from removing processes and departments that weren’t adding too much value, and also having a team that has stuck together and getting better with time. Our attrition rates are maybe amongst the lowest in the industry.
The reason for the runway is also because all the software we use at Zerodha is FOSS or Free and open source. Almost everything we use in terms of software is built by our extremely lean tech team. Which has meant that we were able to scale up revenues without the costs going up, or benefiting truly from economies of scale. Check this.
A key reason for the financial success of the business has been that we have never spent money to acquire customers. Yes, we have a partner and referral model where we share % of revenue, but that is only from the revenue generated. In a low-cost revenue model like ours, it’s very tough to recover Rs 3000 to Rs 5000, which is the approximate customer acquisition cost in Indian broking. We will continue to follow this policy even if this current drop in new users were to continue. The biggest enabler for new account openings is market performance, while you can market and get new account openings, they will have no activity if the environment is not conducive. We can take this stance mainly because we have no external investor obligations to continue showing growth in terms of users and revenue.
https://twitter.com/Nithin0dha/status/1379822282969817091
So yeah, there is most likely going to be a big dip in activity for the broking industry, but hopefully, India can continue its relative outperformance. But even if that wasn’t the case, I think as Zerodha, we should be able to come through okay for the reason mentioned above.
Sir i think next leap frog for Indian equity market would be removal of exposure margin for hedged trades
-Futures turnover have decreased after margin increased and option buying taking place (it is known fact option buyers loose 99%of time)
-this concept of exposure margin for debit and credit spreads is very bad pushing retail traders towards option buying
-as retails have entered in record no SEBI is also worried
-best is to promote complex strategy and reduce option buying
-have also heard you all working on OMS for peak margin,n got feedback for removal of exposure margin this oms need to be applied exchanged wide
-pls pls 
remove this exposure margin whenever sebi consults brokers give this feedback to them
well dude, retail brokers are losing confidence over equity only. During recession Metals trend and that’s where entire crowd goes. Let me show you
check during 2008 and 2020
one thing SEBI can do is add more precious metals like platinum, palladium etc ETF for a nice hedge for retail investors instead of only giving gold and silver
Zerodha has already started Loan against Securities. Now they will ask those who are stuck with their holdings to take loans against them and trade. By doing this they’ll make money from interest as well as brokerage.
