Trial by fire awaits Zerodha, India’s hottest stockbroking app

For thousands of millennials in India who became first-time investors amid the Covid-19 pandemic, stock market trading became synonymous with Zerodha, a tech-driven unicorn that has turned into the country’s biggest stockbroking platform by active users.

Founded in 2010, the company has raced past decades-old legacy brokerages as well as newer competitors with deep pockets. And Zerodha did all that without any external funding or large-scale marketing campaigns and promotions.

The Bengaluru-based firm started as a minnow in the broking industry, onboarding only 7,000 clients within a little over a year of operations. Since then, it has amassed a client base of 7.3 million users, with close to 5 million regular users – that’s nearly 20% of the active user base in the Indian brokerage industry.

Much of Zerodha’s growth came because of its dirt-cheap brokerage fees and easy-to-use platform, which drew a large chunk of young tech-savvy investors who crowded into India’s stock market when it rebounded from a Covid-driven slump in early 2020.

Despite being a flagbearer of the discount brokerage model in the country, the fintech firm faces the challenge of keeping the momentum going while navigating the risks of market volatility, stricter regulation, and growing competition.

Having recently secured an in-principle approval for an asset management license, the company is now set to make inroads into India’s mutual funds market. As with its main business, Zerodha’s focus will once again be on young investors seeking an affordable and uncomplicated product.

Catching the wave

When the Covid-driven financial crisis hit in 2020, governments across the globe went into firefighting mode, loosening monetary policy and pumping out fiscal stimulus. In India, the central bank slashed interest rates to record lows, making low-yielding fixed deposits – where Indians have traditionally preferred to park their money – less attractive.

Though there has been some talk about the rollback of rate cuts amid concerns of an uptick in inflation in the US and other countries, policymakers have so far held off on it.

I think this is a perfect storm for equities at the moment – a Goldilocks scenario, as we sometimes say.

India’s central bank recently maintained its benchmark interest rate at 4% for the eighth time in a row in a bid to support an economic recovery.

“I think this is a perfect storm for equities at the moment – a Goldilocks scenario, as we sometimes say,” says Herald van der Linde, chief Asia equity strategist at HSBC Hong Kong. “You’ve got a low-interest-rate environment. Growth looks pretty good, balance sheets of most listed companies look pretty OK, and central banks are not eager to drain liquidity from the markets as of yet.”

Standing out in the crowd

Speed breakers ahead

Expect the worst, hope for the best