The Representative

India's Youth News Tank

Zerodha: From a Start-up to The Leading Stockbroker

4 min read

What started as a startup is now a leading stockbroker. All eyes are on India’s biggest stockbroker – Zerodha as the technology-backed brokerage firm bagged the top prize at the 6th edition of The Economic Times Startup Awards 2020. It emerged victorious owing to its resilience and tenacity to sail through the toughest phases. 

Zerodha is one of the many winners who has displayed its potential to go on and become the blue-chip corporations. The Bengaluru-based start-up exemplifies an incredibly inspiring story of home-grown success. The firm’s perseverance has paid off by dethroning long-time market leaders – ICICI Securities & HDFC Securities and becoming the country’s largest retail brokerage platform. 

Zerodha is a master player in its field. Driven by superior technology, it is known for disrupting the online broking sector without raising external capital, scaling the business, and being profitable. It works on the ‘low margin and high-volume’ model. The broking firm commenced its operations in the midst of a trading lull, a decade ago. Founder Nitin Kamath had an eye for trading in the stock market and sensed the need for a simple, online service that removed barriers for the freshers.

It kicked off with a team of 5 and now has an employee count of nearly 1300.The entry of Zerodha has brought in many firsts with it. It changed the shape of the Indian stockbroking industry. The platform received the first-mover advantage owing to its pioneering idea of a ‘discount broking model’. They charge a maximum of Rs 20 on transactions such as futures, options, and intra-day trades. However, this gave rise to apprehensions about the quality of service it offers.

The success of Zerodha has rather been slow-paced. In the first year, the stockbroking firm opened 3,000 accounts. In late 2015, Zerodha announced that all investments through its platform would be brokerage-free. This helped to attract a younger, newer, and more tech-savvy breed of investors into the market. 

In 2016, Zerodha won the Bootstrap Champ category after which it cornered a 15% share of all retail trading executed on the stock exchanges in India.Zerodha’s remarkable success can be attributed to the credibility and transparency that it offers to its users. Starting from scratch and winning the Startup of the Year Award has surely been a rollercoaster journey. Zerodha has proved its success by way of developing a community of traders. The road to success has not been smooth. Zerodha also has its low-key days. There have been instances of technical glitches, connectivity, and system outages on its Kite platform.

This occurs on days of F&O expiry as well as high market volatilities. But this has not deterred the firm from achieving a massive user base of nearly 3M up-to-date. Over a decade Zerodha has transformed into a self-sustainable business. Its FY20 revenue was reported at Rs 950 crore and a gigantic profit of Rs 350 crore. But the interesting fact here is that Zerodha spends ‘zero’ on advertising! 

Another problem that crossed Zerodha’s path is the absence of research services. To overcome this obstacle in its course, Zerodha came up with ‘Varsity’. It is a learning module launched by the indigenous firm. It also has an active forum – Trading Q&A – where stock market enthusiasts can share ideas.

Making optimum use of technology via its trading platform, ‘Kite’, Zerodha has been able to differentiate itself from its rivals. ‘Kite’ accounts for more than 10% of all retail trading turnover in the country.  To promote start-ups in the field of new technology and product development, Zerodha initiated its own enterprise fund – Rainmatter. It is currently incubating 12 start-ups. Some notable investments of Rainmatter are in Cred, Finception, Small case and Sensible.

The company has now started to indulge in lending and selling mutual funds directly through its own platform, ‘Coin’. With over Rs, 7500 crores transacted, it is the largest direct mutual fund platform in India.
Giving its competitors a run for their business, Zerodha started diversifying into selling assets such as government securities, Treasury Bills, and sovereign gold bonds. In 2019, the firm dived into the arena of the alternative investment fund by launching ‘True Beacon’.

The main aim was to give returns in volatile markets using their defensive investment strategy. The fund generated more than a 13% return in its first year. In June 2020, Zerodha entered the unicorn club. Its self-assessed value stands at about $1Bn. The valuation is based on the ESOP buyback exercise wherein each share was valued four times more than the book value of Rs 700 per share. It is rare to find businesses in our ecosystem which escalate to fame by defying models and conventional wisdom. Leaning on itself to thrive and shine, Zerodha has laid new benchmarks for players in the sector.

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