Discount brokers take giant strides; now account for 57% of active clients

The majority of incremental customer acquisition is now happening from tier-2 cities

The market share of discount brokers—such as Zerodha, Groww, Upstox and Angel One—has grown 5x in the last five financial years, with more than half of the National Stock Exchange's (NSE's) active clients trading coming through them, according to a report by CLSA.

Discount brokers now (11MFY23) account for 57 per cent cumulative market share, up from 11 per cent in FY18. Further, the number of active clients on NSE with discount brokers has grown from just 1 million to 19 million during this period. Active traders are the ones who have traded at least once in 12 months. 

"Discount brokers have been instrumental in widening retail investor participation in India. For them, the majority of incremental customer acquisitions is happening from tier-2 and lower locations," said the report.

These discount brokers have become systemically important in the market. Zerodha and Angel One have also been included in the Qualified Stock Broker (QSB) list by the stock exchanges on account of factors like their size, trading volumes and amount of clients' funds. Brokers under QSB are obliged to discharge additional responsibilities.

While retail participation saw a sharp uptick during covid-19, it is on the downtrend hitting 40.8 per cent of the average daily turnover in NSE's cash segment in February 2023. A year ago, it stood at 52 per cent, while at its peak in July 2020, the retail investors accounted for nearly two-thirds of the cash market volumes.

The multifold jump in retail participation has also been seen in the rise in demat accounts, which have now touched 119 million.

"In FY22, cities beyond the top 50/100 cities accounted for 57%/43% of new investor registrations for NSE, indicating a widening interest in equity markets. NSE's management targets an overall customer base of 100 million by FY26," said the report.

Further, the report notes that the volumes in futures and options (F&O) have surged from Rs 3,454 trillion in FY20 to Rs 33,268 trillion for the 11 months in the current financial year.

"The share of trading from individual investors has increased from pre-Covid levels of 25-28 per cent to 36 per cent today. The share of proprietary traders declined over FY16-20 but increased thereafter," said CLSA for the participants in options.

Discount Brokers Take the Retail Pie
	Total NSE Active Clients (millions)	Market share
FY17	0.4	7%
FY18	0.9	11%
FY19	1.4	16%
FY20	2.6	24%
FY21	8.1	43%
FY22	19	53%
11Months FY23	19.2	57%
Source: CLSA

Active Clients on NSE (million)
FY17	6
FY18	8
FY19	9
FY20	11
FY21	19
FY22	36
11Months FY23	34
Source: CLSA