Brokers explore new vistas as derivatives slump hits profits

India's largest retail-focused brokerages are facing an existential squeeze.

- Srushti Vaidya

India's largest retail-focused brokerages are facing an existential squeeze. After years of explosive growth fuelled by booming futures and options (F&O) trading, a regulatory clampdown has sharply dented volumes, and with them, profits. Now, with margins under pressure and revenue growth fading, brokers are racing to reinvent themselves by expanding into lending, wealth management, and distribution.

The shift comes after a series of regulatory measures by the Securities and Exchange Board of India (Sebi) starting October 2024, aimed at curbing speculative excesses in the booming F&O segment. These included restrictions on weekly index option expiries and tighter margin regulations, which have led to a sharp drop in derivatives trading volumes since.

Index options average monthly turnover on the National Stock Exchange, India's largest with around 79% market share in equity options, are down about 27% year-on-year to ₹9.44 trillion in FY26 so far. To be sure, broking firms have been expanding outside their core business for some time. But the pace of diversification has increased after Sebi's curbs on retail F&O trading.

According to CareEdge Ratings, the industry's stock broking revenue at ₹43,900 crore in FY25. While brokerages do not break out F&O income separately from cash equities, the impact on broking income has been visible.

For instance, broking as a percentage of total revenue at Angel One dropped from 65% in Q3FY25 to 61% in Q1FY26. At 5paisa, it fell from 52% to 46%. Motilal Oswal Financial Services and Geojit Financial Services, which have more diversified revenue models, saw less change.

"Their sources are diversified. After the curb by the regulator on F&O, now they may shift focus from one segment to another," said Siddarth Bhamre, head of research (institutional equities) at ACMIL.