The Indian stock market is experiencing a significant correction, with trading volumes plunging across both equities and options. Nithin Kamath, the founder of Zerodha, recently highlighted the extent of this slowdown, stating that the broking industry is witnessing degrowth for the first time in 15 years. The data supports his claim, with overall trading activity falling sharply from its all-time highs (ATH).

A Market Correction in Full Swing

As the stock market moves between extremes, the current downturn seems inevitable after a period of exuberance. The latest charts reveal that:

Equity turnover has declined 42% from its ATH, with retail turnover down 41%.

Options turnover has fallen 46% from its ATH, while retail participation is down 41%.

This trend suggests a significant pullback in trader activity, raising concerns about the depth of Indian markets.

A 30% Drop in Trading Activity Across Brokers

Kamath noted that brokers are seeing a 30%+ decline in the number of traders and trading volumes. This drop reflects multiple factors, including regulatory changes, market corrections, and potential liquidity constraints among retail traders.

One of the key reasons behind the decline is the recent "True-to-Market" circular, which aims to ensure fairer pricing and reduce excessive speculation. However, the unintended consequence seems to be an accelerated decline in trading activity.

The Shallow Depth of Indian Markets

Despite growing retail participation in recent years, Kamath pointed out that Indian stock market activity is still concentrated among just 1-2 crore investors. This means that when market sentiment shifts, it has an outsized impact on trading volumes and broker revenues.

The recent slump underscores how reliant the market is on a small group of active traders. Unlike in developed markets, where institutional players dominate turnover, India’s stock trading is still retail-driven.

Government's STT Revenue to Fall 50%?

Another major consequence of this downturn is the expected fall in Securities Transaction Tax (STT) collection. The government had estimated ₹80,000 crore in STT revenue for FY25-26, but if the current trend continues, it might not even reach ₹40,000 crore—a staggering 50% shortfall.

This could impact government finances, given the reliance on STT as a steady revenue stream from capital markets

Disclaimer: The information provided in this article is for informational purposes only and should not be considered as financial or investment advice. Stock markets are subject to risks, and past performance does not guarantee future results. Readers are advised to conduct their own research or consult a financial advisor before making any investment decisions. The views expressed in this article are based on publicly available data and expert opinions, and we do not take responsibility for any financial losses incurred based on this information.