Perhaps the writing was on the wall. Even the bull run of Indian public markets in 2025 which ended the year roughly 9-10% higher than a year ago and the record public market listings did not stop the government from putting brakes on the aggressively growing but highly volatile derivative trading in the country.
Building upon its commitment of raising the transaction cost for Futures & Options trading, the union finance minister Nirmala Sitharaman announced during Budget 2026 further raising of the Securities Transactions Tax on F&O trading, setting the markets in a frenzy.
The markets, which remained open on Budget day, went into a sell-off frenzy set off by STT hikes on F&O premium and execution, as well as the other major taxation announcement of taxing the buybacks at par with capital gains tax.
Sitharaman proposed raising the STT on Futures to 0.05% from the present 0.02%, while options premium and exercise of options are both proposed to attract an STT of 0.15%, up from the present rate of 0.1% and 0.125% respectively. These changes will be applicable for trades and investments on and after April 1, 2026.
The government clarified that the move is aimed to address the disproportionate increase in speculation in futures and options trading.
The hikes are meant to essentially handle the systemic risk in derivative markets, and the government is confident that the changes will curb some of the enthusiasm for F&O trading among inexperienced traders and retail investors. “Even after this increase, however, the rates of STT will remain modest compared to the volume of the transactions that are happening there,” he added.
While markets partially recovered towards the latter half of the day from an earlier fall, analysts say that there would be headwinds for the public markets in the short-term with crunching liquidity.
According to those we spoke to, long-term investors and cash market participants may feel only a marginal pinch, but the policy reset strikes at the heart of India’s fast-growing discount broking ecosystem, where a number of players have built plans around F&O trading.
Platforms such as Zerodha, Groww and Angel One—built on high trading intensity, thin margins and retail derivatives participation—now face a structural challenge that goes beyond a single volatile trading session.
Growing Concerns For Groww, Zerodha, Angel One
TL;DR: The overall F&O trading volumes reportedly fell by 29% in notional terms in FY25 from a year ago.
Markets regulator SEBI has been sounding alerts on curbing high volatile F&O trading activity by bringing various structural changes from true-to-label transparency guidelines to expiry-day restrictions and stricter compliance demands since last year.
The overall F&O trading volumes reportedly fell by 29% in notional terms in FY25 from a year ago.
The revenue woes of Zerodha and Angel One in particular arose from the new regulatory structures and transaction costs with a steep topline decline as well as user base erosion.
He added that in the more near term, this raises friction and the break-even threshold.
In terms of revenue exposure, Zerodha CEO, Nithin Kamath had earlier stated that he expects at least 50% drop in FY26 topline of the discount broking firm if the regulatory structures are further tightened. In FY25, Zerodha had seen a 40% dip in revenues to INR 8,500 Cr .
Angel One’s revenues fell by 25% YOY to INR 4,618 Cr ,whereas for Groww the impact was less pronounced with topline declining by 17% YOY to INR 3,901 Cr in FY25.
Zerodha, Groww and Angel One earn modest revenue per trade, relying instead on millions of transactions executed daily by retail investors—particularly in futures and options, where engagement levels are highest.
The STT is a non-recoverable tax. Unlike brokerage fees, it cannot be discounted, rebated or absorbed without affecting trader economics.
For private players like Zerodha and Groww, the risk is subtle but deep: a prolonged slowdown in trading activity would challenge the operating leverage that has powered their profitability engines and valuations over the past few years.
The concern within the industry is that once trading habits shift—towards fewer trades, longer holding periods, or reduced options activity—they may not easily revert, even if market sentiment improves.
Angel One, as a listed company, felt the impact almost immediately on Budget Day with a sharp 10% decline in stock price from a day before.
Groww, which has relatively lower exposure to F&O trading volumes, also saw a decline in stock price by 3.09% on Budget day as the tax news spoofed the markets.
“In Q3 FY26, F&O brokerage contributed about 44% of our gross revenue, while interest income from client funding and our broader platform accounted for around 33%, with the rest coming from cash and commodity broking, depository, distribution, and other income streams. This diversified mix reinforces the resilience of our model and gives us confidence that the broader trajectory of our business remains firmly intact,” Amit Majumdar, group chief strategy officer, Angel One told Inc42.
Diversification Is the New Hedge
TL;DR: Angel One’s Majumdar argued that India’s retail participation and broader financialisation are still in the early stages.
While the high-frequency and volume-led F&O trades helped platforms like Zerodha, Groww and Angel One post record topline growth and profits during and post pandemic, the regulatory scrutiny particularly the tax burden on the derivative trading activity has forced these players to diversify their revenue streams.
Angel One’s Majumdar argued that India’s retail participation and broader financialisation are still in the early stages. Marginal changes in transaction costs do not alter the long‑term behaviour of participants in the capital markets.
Zerodha, as we reported earlier, is also planning to move away from a discount broking model to charging fees on equity trading as well as its AMC, Margin trading facility and advisory business.
Groww is also doubling down on its AMC business with strategic partnerships with international players like State Street and also bidding for acquisitions of domestic mutual funds to hedge against the risks involved with high exposure to F&O trading related topline.
Yet regulators and policymakers are increasingly uneasy with the nature of such frenzied participation. While headline market indices appeared stable, volatility beneath the surface was rising. Retail losses in options trading, leverage-fuelled speculation and the growing dominance of short-term strategies raised concerns about market stability and investor protection.
Against this backdrop, Budget 2026 did not arrive as a bolt from the blue. It represented a logical next step in the policy direction that has been signalled over the past few years.
Curated by Dr. Elena Rodriguez
