Zerodha founder Nithin Kamath flagged the brokerage's ₹9,000-crore margin trading funding (MTF) book as a growing concern in his 16th-anniversary letter.
He said trading volumes and new customer additions have slowed since Indian markets peaked in September 2024, though Zerodha remains India's largest broker by AUM.
Kamath said MTF contributes about 10% of Zerodha's revenue but is not a suitable product for most customers.
Zerodha Turns 16: Nithin Kamath Says Trading Slowdown Hasn't Dented AUM Growth
With the broking industry already dependent on futures and options activity, additional leverage through MTF could turn a sharp correction into what he called a "double whammy"
Zerodha CEO Nithin Kamath X/@Nithin0dha
Summary
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Zerodha founder and chief executive officer Nithin Kamath said the brokerage's margin trading funding (MTF) book has grown to about ₹9,000 crore, calling this part of the business a growing worry, in his annual letter to customers marking Zerodha's 16th year.
MTF allows investors to buy shares by borrowing part of the funds from the broker. Kamath said such leverage can boost returns when markets rise, but losses can escalate quickly when markets fall. "The problem with leverage is that it gives you a boost when things are good. But when things go bad, they can get bad really, really quickly," he said.
Slowdown In Market Activity
Kamath said the broking business has had a difficult couple of years, with revenue hit by regulatory changes and trading volumes declining after Indian equities peaked in September 2024. He said clients have borrowed about ₹6,000 crore under MTF, roughly 25% of Zerodha's net worth. While Zerodha is comfortable at its current exposure, he noted that brokers are permitted to lend up to five times their net worth, which could pose contagion risks if leveraged positions unwind sharply during a downturn.
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He added that Indian markets remain shallow, and liquidity can dry up quickly during a fall. With the broking industry already dependent on futures and options activity, additional leverage through MTF could turn a sharp correction into what he called a "double whammy." MTF currently contributes about 10% of Zerodha's revenue, he said, though he maintained that it is not a suitable product for most customers.
Growth In AUM Despite Slowdown
Despite slower trading activity, Kamath said Zerodha's assets under management (AUM) have continued to grow, making it India's largest broker by AUM. He said this metric matters most to the company since it reflects customer trust and tends to be more stable than trading account balances.
Kamath also pointed to broader headwinds, including subdued returns in Indian equities compared with markets like the US, Japan and South Korea, along with pressure from rupee weakness and foreign investor outflows.
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On the company's operations, Kamath said Zerodha's core team across technology, product, business and operations remains under 100 people, and that artificial intelligence has helped the company build and improve products more quickly.