The Indian stock market is witnessing a significant correction after reaching record highs. While market movements are unpredictable, the founder of Zerodha, Nithin Kamath, has highlighted a concerning trend: a sharp decline in trading volumes. This drop is having a profound impact on the broking industry and could significantly affect the government’s revenue from Securities Transaction Tax (STT).
According to Kamath, there has been a drastic 30% decline in trading volumes across brokerage firms. The broking industry, which had seen consistent growth for the past 15 years, is now facing a period of degrowth for the first time. This downturn is exacerbated by the implementation of SEBI’s “true-to-market” circular, which has further reduced market activity.
The markets are finally correcting. Given that markets swing between extremes, they can fall more just like they rose to the peak.
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… pic.twitter.com/wHO6hSRdbA
— Nithin Kamath (@Nithin0dha) February 28, 2025
Kamath pointed out that India’s stock market participation remains limited, with only 1-2 crore active traders driving most of the activity. This lack of depth makes the market vulnerable to sharp downturns and reduced liquidity during corrections.
The Securities Transaction Tax (STT) has been a major source of revenue for the government, with an estimated collection of Rs 80,000 crore for FY 2025-26. However, given the current slowdown in trading activity, Kamath predicts that STT collections may not even reach Rs 40,000 crore—50% below the government’s target. If the market downturn persists and trading volumes continue to shrink, the government may face a substantial shortfall in its revenue projections.
A sharp decline is visible across indices, with Nifty down 15%, Nifty Midcap falling 21%, and Nifty Smallcap dropping 25% from their peaks. Sectoral indices have also suffered, with Nifty Metals falling by 20%, Nifty IT declining by 19%, and Nifty Bank witnessing a 10% drop. Public sector enterprises and real estate stocks have been the hardest hit, with Nifty PSE and Nifty Realty each plummeting by 30%.
So far in 2025, Nifty is down 6.5%, Nifty Bank has declined 5.11%, Nifty Midcap has dropped 17%, Nifty Realty has fallen 24%, and Nifty Pharma is down 15%.
