Stock Market Slump: Zerodha CEO Nithin Kamath Warns Of Major Trading Volume Decline

On Friday, February 28, 2025, the Indian benchmark indices, Nifty50 and Sensex, suffered a significant drop, driven by multiple factors, including the impact of President Trump's tariffs, continuous Foreign Institutional Investor (FII) selling, and weak global market cues.

The BSE Sensex tumbled 1.9 per cent, closing at 73,198.10 points, a sharp decline from 74,612.43 points in the previous session. Similarly, the Nifty50 index slid 1.86 per cent, settling at 22,124.70 points, compared to its previous close of 22,545.05 points.

Nithin Kamath's Take On Market Slump

Amid the market downturn, online brokerage firm Zerodha CEO Nithin Kamath voiced his concerns about the sharp decline in trading activity. Sharing his thoughts on X (formerly Twitter), he remarked, "I've no idea where the markets go from here, but I can tell you about the broking industry. We are seeing a massive drop in terms of both the number of traders and volumes."

Kamath highlighted a 30 per cent decline in trading activity across brokerage platforms, citing National Stock Exchange (NSE) data. He pointed out that the falling trading volumes indicate the shallowness of the Indian stock market, where activity remains largely concentrated among just 1-2 crore traders.

Concerns Over STT Revenue Decline

Kamath further warned that if this trend continues, the government's revenue from Securities Transaction Tax (STT) could fall below Rs 40,000 crore in FY 2025-26, nearly 50 per cent lower than the projected Rs 80,000 crore.
"This drying up of volumes shows how shallow the Indian markets still are. The activity is more or less among those 1-2 crore Indians. By the way, if this continues, the government will not make even Rs 40000 cr from STT in FY 25/26, at least 50% below the Rs 80,000 cr estimate."

For context, STT is a direct tax levied on the sale and purchase of stocks, derivatives, and mutual funds on recognized domestic exchanges. A sharp drop in trading activity could significantly impact the government's tax collection.

Market Downturn: A Rare Streak Of Consecutive Losses

Adding to investor concerns, Nifty50 registered its fifth consecutive monthly loss on February 28, marking its longest losing streak in nearly three decades. All 13 major sectors opened in the red, reflecting widespread market weakness.

Kamath also linked the recent regulatory changes, including the "true-to-market" circular, to the slowdown in trading activity. He noted that for the first time since Zerodha's inception 15 years ago, his brokerage firm is witnessing business degrowth.

What Lies Ahead?

As the Indian stock market grapples with global uncertainties, FII outflows, and regulatory shifts, analysts and investors remain cautious about what lies ahead in the coming months.

Experts believe that while short-term volatility may persist, strong domestic fundamentals and long-term growth prospects could help stabilize the markets.