In October 2024, SEBI introduced a series of measures that effectively restructured the Indian derivatives market. Weekly options contracts on individual stocks were banned. The minimum contract size for index derivatives was raised significantly. Upfront margin requirements were tightened. The measures were framed as investor protection, and the underlying data justified every single one of them.
SEBI's own study of 45 million individual trader accounts in the F&O segment over FY22–FY24 found that 93% of individual traders lost money in equity derivatives. The average loss per losing account was over ₹2 lakh. The aggregate loss across retail F&O participants over three years exceeded ₹1.8 lakh crore. This was not a marginal inefficiency. It was a structural wealth transfer from retail traders to professional market participants, facilitated by the infrastructure that discount brokers built.
SEBI was right to act. The harder question, the one that actually matters for investors in the brokerage space, is what happens next.
How discount brokers were built on derivatives
To understand why the F&O crackdown hits discount brokers so hard, you need to understand what their revenue model actually was. This is not obvious from their marketing, which emphasises democratising investing and flat-fee equity delivery trades.
The reality: for most leading discount brokers, equity delivery (buy-and-hold investing) generated minimal revenue because they charged zero or near-zero brokerage on delivery trades. The revenue engine was almost entirely intraday and derivatives trading, specifically, the per-lot fee charged on every F&O contract executed.
Broking revenue from F&O: ~60–65% of total broking revenue
Broking revenue from equity delivery: ~5–8% (near-zero per-trade fees, low volume)
Broking revenue from intraday equity: ~15–20%
Distribution and other income: ~15–20% (mutual fund commissions, insurance distribution, margin funding)
Active F&O clients as % of total base: approximately 30–40% of monthly active users drove the vast majority of broking revenue
The same pattern holds broadly for Zerodha, 5Paisa, and Groww. The discount brokerage model was never really about equity investing at scale. It was about providing cheap access to derivatives for retail traders who were, in aggregate, systematically losing money. SEBI has now made that activity substantially more expensive and less accessible for the marginal retail participant, which was precisely the intent.
The volume collapse
The immediate impact of the October 2024 restrictions was a sharp decline in equity derivatives volumes, particularly in weekly index options, which had been by far the highest-frequency, highest-volume product in the market. NSE's weekly Nifty options contracts had become one of the most liquid derivative markets in the world by notional turnover. That volume has contracted materially since the restrictions took effect.
The mechanism is straightforward. Weekly options allow traders to take highly leveraged positions with a very short time horizon (3–5 days to expiry). The combination of high leverage, short duration, and the psychological appeal of "one more trade" made them extremely popular with retail traders, and extremely lucrative for brokers charging per-lot fees. With weekly index options on individual stocks eliminated and contract sizes raised, the cost of participation for small retail accounts increases substantially. Many simply exit the product.
The regulatory logic was impeccable. The financial consequences for brokers that built their model on this behaviour are equally predictable, and equally severe.
Who gets hurt most, and who is positioned better
Not all discount brokers are equally exposed. The degree of impact correlates closely with how dependent each broker was on F&O revenue and how much diversification they had built into their revenue mix.
Angel One had made the most explicit bet on the active trader segment. Its entire product and marketing strategy was built around acquiring active traders at low cost through digital channels and monetising their derivatives activity. Angel One also built a significant distribution business through Angel One Wealth, its AMC and advisory arm, along with mutual fund and insurance distribution partnerships. But that revenue remained smaller relative to the core broking P&L. The F&O shock hits Angel One harder than peers because its revenue concentration was highest.
Zerodha has always been more diversified than it appears. Its Coin platform for direct mutual fund investing, its position in the SEBI-registered investment adviser space, and Zerodha Fund House (its AMC subsidiary) provide revenue streams that are structurally uncorrelated with F&O volumes. Zerodha also never aggressively grew its client base through heavy marketing spend, its cost structure is leaner and its client base is more premium on average. Zerodha survives this regulatory cycle better than the marketing suggests.
Groww and Paytm Money are more interesting cases. Groww had built its brand primarily on the SIP and mutual fund investor, genuinely the long-term investing market rather than active traders. Its F&O exposure was lower as a share of revenue, and it benefits from the structural SIP growth that continues regardless of derivatives regulation. Groww's challenge is profitability and margin, not revenue concentration in F&O.
The recovery path, two plausible versions
The discount brokerage sector has two plausible recovery paths, and which one plays out depends on execution choices made over the next 18–24 months.
Version 1, wealth management pivot. The intelligent response to losing derivatives revenue is to monetise the same customer base through products with recurring revenue and higher margins: mutual fund distribution, advisory fees, structured products, NPS, insurance. The broker already has the client, the KYC, the mobile app, and the trust. The challenge is that wealth management requires a fundamentally different skill set, relationship management, financial planning, product suitability, than running a low-touch trading platform. For most discount brokers, this transition is harder than the strategy decks suggest.
Version 2, wait for normalisation. Some volume comes back as new regulations become the baseline and surviving retail traders adapt. Monthly and quarterly options remain. There is still an equity intraday market. Sophisticated retail traders migrate to longer-dated derivatives strategies. The broker earns less per active client, but manages costs aggressively and waits for the regulatory environment to stabilise before making large bets on new products.
Version 2 is the path of least resistance. It is also the path that results in permanently lower valuations relative to the peak F&O cycle multiples.
What I actually think happens
I think the discount brokerage space re-rates lower, and stays there, for longer than the current consensus implies. The bull case for these stocks in 2022–2024 was built on an assumption that F&O volumes would continue growing at 30–40% annually. They will not. SEBI has broken that trend deliberately.
The stocks that outperform from here are the ones that can demonstrate genuine progress on revenue diversification, specifically, recurring fee income from wealth management that shows up as actual AUM and client revenue, not just aspirational strategy statements. That transition takes 3–4 years to be visible in P&L. Investors pricing in that transition in 2026 are early.
Meanwhile, the stocks that struggle are those still carrying cost structures built for a higher-volume derivatives world, customer acquisition marketing spend, technology investment in high-frequency trading infrastructure, sales teams built for onboarding active traders. Those costs do not shrink as fast as the revenue did.
SEBI's intervention was good for Indian retail investors. It was not designed to be good for discount broker shareholders. And when regulators choose investor protection over industry economics, the industry tends to underperform for a while. That is not a complaint. It is the calculus.