The Sexy Illusion of Broking? Kamath Exposes Hidden Industry Risks

Muskaan Kapoor

20 Jun 2025 — 3 min read

Nithin Kamath Shares What Makes Brokerage Risky Business

Zerodha’s Founder and CEO, Nithin Kamath, has issued a candid reflection on India’s broking industry, questioning the sustainability and perceived attractiveness of the business. In a recent LinkedIn post, Kamath highlighted how a majority of brokerage revenue today is concentrated in just two contracts, Nifty and Sensex Futures & Options (F&O), posing a significant risk to the industry’s future stability.

Concentration Risk Still Looms, Just in a New Form

Kamath recalled a conversation with a private equity veteran who had evaluated a broking firm back in 2008 but chose not to invest. The key reason? The firm’s revenues were heavily dependent on a small number of active clients.

“As I’ve mentioned numerous times, a small number of active traders contribute to most of the exchange turnover. This was a lot worse back then,” Kamath noted.

Fast forward to 2025, and while the broking landscape has evolved, the core risk still remains, only now it’s the products, not the clients. Kamath revealed that for Zerodha, over 80% of revenue is generated from just two instruments: Nifty and Sensex F&O contracts.

“That’s a massive concentration risk. One change can wipe out a big chunk of our revenues,” he warned.

He further added that this scenario is not unique to Zerodha, but is common across most Indian brokerages. Kamath questioned whether this risk is properly accounted for when brokerage businesses are valued, especially as investor interest in the sector continues to grow.

No PFOF, No Crypto, Forced Settlements

Apart from the heavy reliance on just two contracts—Nifty and Sensex F&O—Kamath also pointed out other major challenges Indian brokers face. He noted that, unlike in the US and other markets, there is no payment for order flow (PFOF) in India, a controversial yet lucrative revenue stream for brokers overseas. However, Kamath clarified that Zerodha does not support this model regardless.

Further complicating matters, the Indian regulatory framework restricts brokers from offering cryptocurrency trading. On top of that, they are required to return idle funds to customer bank accounts every quarter, as part of the quarterly settlement process.

“It’s like a forced bank run,” Kamath wrote, describing the stress this causes for brokerages managing large client bases.

While these rules are designed with investor safety in mind, they also make it harder for brokers to maintain steady cash flows and offer competitive services, especially in the absence of alternate monetisation avenues.

Kamath on the Illusion of Glamour in Broking

Kamath ended his post with a thought-provoking comment that summed up the contradiction:

“I wonder why the brokerage business looks so sexy from the outside.”

His remark highlights how broking may look attractive from the outside—with flashy apps, high trading volumes, and growing retail interest, but the underlying business model is fragile and exposed to multiple risks, both regulatory and structural.

Bottomline

As Indian equity markets continue to expand and attract global attention, Kamath’s perspective acts as a timely reminder for entrepreneurs, investors, and regulators to look beyond surface-level growth metrics. For the broking industry to remain sustainable, it must focus on diversification, smarter regulation, and reducing its heavy reliance on just a few trading instruments.