Retail investors exit markets as major brokers witness a decline in active users

Eight out of the top 10 brokerage firms in India saw a decline in the number of active investors in February, as retail investors pulled back amid ongoing market corrections for the fifth consecutive month, according to data from the National Stock Exchange (NSE).

Leading the list of impacted firms is Groww, the country's largest brokerage house, which reported a significant drop of over 2.2 lakh active investors—the first decline since March 2023, moneycontrol reported.

The Bengaluru-based firm, which launched direct stock investments in mid-2020, had an active user base of around 1.3 crore by the end of February. Despite the dip, Groww’s substantial lead over competitors continues to provide a cushion as it moves toward its initial public offering (IPO).

Other top brokerage firms, including Zerodha and Angel One, reported notable declines in active investors as well. Zerodha, the second-largest broker, saw its active user base shrink by over a lakh to 79.5 lakh, while Angel One recorded a similar decline to 76.5 lakh in February. This marked the third consecutive month of decline for Zerodha and the second straight month for Upstox, the fourth-largest brokerage firm.

The top three brokers—Groww, Zerodha, and Angel One—had maintained investor bases of approximately 1.32 crore, 81 lakh, and 78 lakh, respectively, as of January. The only two brokerages among the top 10 to register growth in active investors were HDFC Securities and Dhan.

One of the major reasons for the drop in active users is the Securities and Exchange Board of India’s (SEBI) crackdown on derivatives trading. Last year, SEBI imposed stringent regulations after studies revealed that nearly 90 percent of retail investors incurred losses while trading in futures and options (F&O).

This move hit the top four discount brokers—Groww, Zerodha, Angel One, and Upstox—particularly hard, as they primarily depend on F&O trading for revenue.

Elevated market valuations, sluggish economic growth, weak corporate earnings, and the ongoing global tariff war have also dampened investor sentiment, prompting many to retreat from the market.

The impact of cautious retail sentiment is evident in the decline of new demat account openings. February witnessed the addition of 22.6 lakh new accounts, marking the slowest growth since May 2023.

This follows a deceleration seen in January 2025 when 28.3 lakh new accounts were added, significantly down from 32.6 lakh in December 2024. As of February, the cumulative number of demat accounts registered with NSDL and CDSL stood at 19 crore, up slightly from 18.8 crore the previous month.

Adding to the challenges, brokerage firms are gearing up for increased taxes on trading, reduced exchange rebates, and tighter controls on retail F&O trading. These factors are expected to significantly impact revenue, with some firms anticipating a 30-50 per cent hit to their topline in the latter half of the current financial year.

As retail investors continue to shy away from the markets and brokerage houses brace for regulatory and financial challenges, the broking industry may face a period of significant consolidation and recalibration in the months ahead.