According to recent reports (July 2025), India’s top four brokerage firms – Groww, Zerodha, Angel One, and Upstox – collectively lost nearly 2 million active investors in the first half of 2025. Specifically, Groww lost 600,000 users, and Zerodha saw a decline of 550,000.

Is this normal? While customer churn is a part of any business, such a significant drop in active users for leading platforms is not entirely normal, especially when the broader market has generally seen gains. It signals a shift in retail investor behavior and market dynamics.

What’s happening? The primary reason cited for this decline is stricter regulations on Futures & Options (F&O) trading introduced by SEBI (Securities and Exchange Board of India). These new norms include:

  • Tighter margin rules: Making it more expensive for retail investors to take large F&O positions.
  • Fewer weekly expiries: Reducing the frequency of short-term trading opportunities.
  • Increased taxes: Adding to the cost of F&O trading.
  • Higher capital requirements: Necessitating more capital to participate in derivatives.

These measures have made derivatives trading less appealing and more challenging for retail investors, who heavily utilized these segments for quick profits. Discount brokers like Zerodha and Groww heavily rely on F&O trading volumes from retail investors.

Interestingly, while these top discount brokers saw declines, some traditional bank-backed brokers (like HDFC Securities, ICICI Securities) and smaller, emerging players (like INDMoney, Dhan, PhonePe’s Share.Market) have reportedly gained active users. This suggests a reallocation of investors, possibly towards less speculative long-term investing or exploring new platforms.

The Jane Street Incident

The “Jane Street incident” is a separate but relevant issue highlighting regulatory scrutiny and market integrity concerns.

What happened? SEBI recently (July 2025) barred US-based high-frequency trading firm Jane Street Group from the Indian markets and ordered it to return ₹4,843 crore (approx. $580 million), terming it as “unlawful gains.” SEBI alleges that Jane Street engaged in “fraudulent and manipulative” practices.

Specifically, SEBI claims that Jane Street:

  • Used its capital and speed to manipulate prices of key index stocks through quick and forceful trades in both cash and futures markets, particularly on options expiry days.
  • Artificially inflated the Bank Nifty index’s price during morning trade by buying large volumes of constituent stocks and futures, while simultaneously building significant short positions in index options, profiting as the market later moved in the opposite direction.
  • The NSE report submitted in November 2024 concluded Jane Street’s actions were “fraudulent and manipulative” and aimed to distort expiry-day pricing.

Jane Street’s Stance: Jane Street is reportedly challenging SEBI’s ban, calling the accusations “extremely inflammatory” and “fundamentally mistaken.” They argue their practices were “basic index arbitrage trading,” a standard and commonplace mechanism that keeps prices of related instruments in line.

Significance: This incident underscores SEBI’s increased vigilance over market manipulation, especially in the derivatives segment, which has seen explosive growth in India. It raises questions about the line between sophisticated arbitrage and manipulative practices, and the role of high-frequency trading in market integrity. It’s a wake-up call for participants regarding regulatory compliance.

Current Stock Markets: Any Experience or Advice?

The Indian stock market is in an interesting phase. While the major indices (Sensex, Nifty) have seen gains over the past few months, the recent decline in active retail traders on top platforms and incidents like Jane Street highlight underlying shifts and challenges.

My thoughts on the current stock markets:

  • Retail Investor Behavior Shift: The dip in active traders suggests a potential cooling off of the “new-to-market” retail frenzy seen in recent years. This could be due to tougher F&O regulations, but also possibly due to some new investors having faced losses in speculative trading. It might indicate a move towards more fundamental, long-term investing, which is generally healthier for the market.
  • Regulatory Scrutiny: SEBI’s actions (F&O norms, Jane Street ban) clearly indicate a stronger stance on market discipline and investor protection. This is a positive sign for the long-term health and credibility of the Indian market, as it aims to curb excessive speculation and manipulation.
  • Earnings Season & Global Cues: As seen in recent days (July 2025), the market is currently navigating Q1 earnings season with some caution, especially regarding IT and finance sectors. Global factors like trade tensions and commodity prices also continue to play a role.
  • Sectoral Rotation: We are seeing profit booking in some sectors (like IT, FMCG, pharma on some days) while others (realty, metal) show resilience. This indicates a more discerning market, focusing on specific industry trends and company fundamentals.
  • IPOs and Demat Account Growth: While demat account additions have slowed down in Q1 FY26 (weakest in eight quarters), India continues to attract IPOs, which indicates ongoing capital market activity and investor interest in new listings.

General Advice for Investors:

  1. Understand Your Risk Tolerance: Before investing, honestly assess how much risk you’re comfortable with. This should guide your asset allocation.
  2. Focus on Long-Term Goals: Don’t get swayed by short-term market fluctuations or speculative fads. Invest with a clear goal in mind (e.g., retirement, house down payment) and a long-term horizon.
  3. Diversify Your Portfolio: Don’t put all your eggs in one basket. Spread your investments across different asset classes (equities, debt, gold), sectors, and market caps to mitigate risk.
  4. Do Your Due Diligence: Before investing in any stock or fund, research the company’s fundamentals, management, industry outlook, and financial health. Don’t invest based on tips or social media hype.
  5. Avoid Excessive Leverage (especially in F&O): The recent customer loss in brokerages underscores the risks of high leverage in F&O, especially for retail investors. If you engage in derivatives, understand the risks thoroughly and use appropriate risk management strategies.
  6. Stay Informed, Not Overwhelmed: Keep abreast of market news and economic indicators, but don’t let daily noise dictate your long-term strategy.
  7. Consider Index Funds/ETFs: For new investors or those who prefer a passive approach, low-cost index funds or ETFs can be an excellent way to gain diversified market exposure without needing to pick individual stocks.
  8. Consult a Financial Advisor: If you’re unsure, seek advice from a SEBI-registered financial advisor who can help you create a personalized investment plan.

The current environment suggests a maturing Indian market, moving away from purely speculative retail trading towards more fundamental-driven investing. While the loss of active customers for major brokers is a concern for their business models, it could signify a healthy recalibration for the market as a whole, driven by regulatory interventions to ensure stability and fairness.