Zerodha’s Nithin Kamath Predicts 50% STT Revenue Dip as Market Correction Hits Trading Volumes

Nithin Kamath, founder of Zerodha, has cautioned that India’s Securities Transaction Tax (STT) revenue could see a drastic reduction if the ongoing market correction persists.

He estimates that government revenue from STT may fall to Rs 40,000 crore in FY 2025-26, down 50% from the projected Rs 80,000 crore.

Kamath attributes this decline to a sharp drop in trading activity, which has decreased by over 30% across brokerage firms.

Significant Drop in Trading Volumes

Kamath expressed concern over the current state of the broking industry, highlighting that Zerodha is experiencing its first significant downturn since its inception 15 years ago.

He noted that the Indian stock market lacks depth, with active trading largely concentrated among 1-2 crore individuals.

“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 stated in a post on X.

Stock Market Correction and Key Triggers

Over the past few months, the Indian stock market has been undergoing a correction. The benchmark indices, Nifty and Sensex, have fallen sharply from their record highs.

Several factors have contributed to this decline, including concerns over U.S. President Donald Trump’s tariff policies, weak global economic indicators, and sustained selling by Foreign Institutional Investors (FIIs).

On Friday, February 28, 2025, the Sensex plunged 1,400 points to 73,189, while the Nifty50 dropped below 22,150.

According to Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Intermediates Ltd., Nifty opened lower due to weak global cues, faced heavy selling, and settled at 22,125.

The India VIX volatility index surged 4.39% to 13.89, signaling increased market uncertainty. Meanwhile, broader market indices underperformed, with the Nifty Midcap 100 and Nifty Smallcap 100 falling by 2.49% and 3.01%, respectively.

Investor Panic and Sectoral Impact

Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd., noted that domestic investors panicked and offloaded equities due to weak global signals, leading to a nearly 2% market crash.

He emphasized investor discomfort over Trump’s import levies on multiple nations.

Kamath reiterated the market’s volatility and emphasized that corrections are natural. “The markets are finally correcting. Given that markets swing between extremes, they can fall more just like they rose to the peak,” he said.

The stock market turmoil erased nearly Rs 9 lakh crore from the market capitalization of BSE-listed companies, with IT, technology, auto, and telecom sectors being the most affected. FIIs continued heavy selling, further aggravating market conditions.

30% Decline in Trading Activity

Kamath revealed that trading activity among brokers has plummeted by 30%, leading to Zerodha experiencing a slowdown in business for the first time in 15 years.

He also linked the downturn to the recent regulatory circular aimed at making the market more transparent.

“Combined with the true-to-market circular, we are seeing degrowth in the business for the first time since we started 15 years ago,” Kamath stated.

He reiterated that the prolonged correction could significantly reduce STT revenue, possibly cutting it by half in the next financial year.

Reasons Behind Market Downturn

The ongoing market downturn is driven by multiple factors, including weak global economic indicators, Trump’s tariff policies, and persistent FII selling.

Kamath addressed investors who entered the market post-pandemic, reminding them that corrections are a normal part of market cycles.

“For investors who started investing after the pandemic, this is the first real market correction. Markets are cyclical, and given the way our markets went up from late 2020, this fall was inevitable,” he noted in a LinkedIn post.

Rising SIP Stoppage Ratio: A Concern

One of Kamath’s major concerns is the increasing number of investors pausing their Systematic Investment Plans (SIPs).

He warned that stopping SIPs during downturns could hinder long-term growth, urging investors to stay committed to regular investments. “You averaged on your way up from 2021; now, you get to average on the way down,” he advised.

A recent JM Financial report highlighted that the SIP stoppage ratio surged to 109% in January, the highest since April 2023.

Kamath cited past trends, pointing out that in 2020, large, mid, and small-cap stocks fell 25-40% before rebounding with gains of 200-400%.

Disciplined Investment Strategy is Key

Kamath urged investors to avoid panic-driven decisions, as doing so could lead to missing future recoveries. “If you had panicked, you would have missed the rebound. As long as you invest regularly in the right funds, diversify, and stay disciplined, your chances of long-term success are high,” he advised.

He strongly discouraged borrowing money for investments, emphasizing that leverage increases emotional stress and often results in rushed, poor decisions. “There’s no shortage of businesses encouraging you to take loans for investing, but that’s a bad idea,” Kamath cautioned.