Zerodha positions itself comfortably at the top.

Discount broking firm Groww is on the verge of surpassing Zerodha, India’s largest equity investment and trading platform, in terms of user count. However, Zerodha’s focus on the trading community positions it as a potential leader in revenue and profit in the near future. Zerodha recently reported a 39 percent growth in profit and revenue for the financial year 2022-23, reaching Rs 2,907 crore and Rs 6,875 crore, respectively.

While Zerodha’s growth rate has slowed down compared to the previous year, where it achieved over 80 percent growth, it’s still noteworthy given the decrease in active retail customers on the National Stock Exchange (NSE) throughout the last financial year.

From 3.7 crore active clients at the beginning of the previous financial year, the figure has declined to 3.2 crore during most of this financial year. Zerodha’s user base has remained static at around 65 lakh in the past fiscal year and has decreased to 64 lakh as of August this year. In contrast, Groww’s user base has grown from about 41 lakh early last financial year to 62 lakh by August this year, potentially surpassing Zerodha in the coming months.

Zerodha’s impressive figures have attracted formidable competitors like HDFC Bank, which introduced its discount broking app called Sky, offering free account opening and maintenance charges for the first year to attract the same trading community. Venture Capital-backed firms like Groww and Upstox also don’t charge such fees, making them popular among new investors and traders.

On September 26, Zerodha’s co-founder and CEO Nithin Kamath stated that despite competition, the company would continue to charge onboarding and maintenance fees to set expectations with potential customers seriously interested in trading.

For Zerodha, account opening and maintenance charges from its 64 lakh active customers generate only Rs 200 crore annually. However, the company’s focus on active traders in intra-day equity and Futures and Options (F&O) allows it to derive 90 percent of its income from these traders. This differs from competitors like Groww and Upstox, whose revenue is a fraction of Zerodha’s despite having a larger user base.

Angel One, the closest rival to Zerodha, reported consolidated revenue of Rs 3,021 crore for FY23, with a net profit of Rs 1,192 crore. Meanwhile, Upstox, backed by Ratan Tata and Tiger Global, saw its user base drop from 58 lakh active customers to around 20 lakh this year, emphasizing the challenge of retaining non-serious traders.

Groww’s approach of targeting new customers with long-term investment products like mutual funds and SIPs, transitioning to direct equity investment, has helped it attract users. However, this approach is characterized by high engagement but low turnover and revenue.

Zerodha, on the other hand, focuses on F&O products and attracts users actively involved in F&O trades, where the industry’s revenue lies. This explains the differences in average revenue per user (ARPUs) between the two platforms.

While Groww has maintained customer loyalty with a seamless experience and simple onboarding, Zerodha’s strategy centers on active traders in the F&O market.

The decline in the number of NSE users, particularly in F&O trading, could impact Zerodha’s performance this financial year. The increased interest in fixed-income products and the Reserve Bank of India’s measures to control liquidity are also challenges for trading-focused apps.

In conclusion, while Groww is set to overtake Zerodha in user count, the latter’s focus on the trading community positions it to remain a leader in revenue and profit. However, the plateauing of business and competition pose challenges that Zerodha must navigate in the coming years.