F&O trading dips 30% in 2024: Nithin Kamath warns glory days are over

Zerodha Co-founder Nithin Kamath has said the year 2024 was a "weird year" in terms of the overall performance of the market, and that it’s possible the glory days of the industry are behind. He says the regulatory landscape has changed the rules of the investing game and capital markets are expected to be "subdued" going forward, and things might soon revert to the mean.

Kamath says after having the best year for the brokerage industry, it seems "the best is behind us", at least for the foreseeable future. "In options turnover, we are back to 2022–23 levels. This is even before the impact of the increased lot sizes, which take effect in January 2025," says Kamath.

As Zerodha, India's largest online stock broker, turns 14 years old, Kamath says things are changing at an unnerving pace. "It’s hard not to get caught up in the frenzy and feel a sense of FOMO. You keep wondering if you’re missing out on something big."

Describing the year 2024 as the year of significant regulatory changes that affected "pretty much everyone in the markets", from retail traders, investors, brokers, and the market infrastructure institutions, Kamath says the biggest and most consequential regulations were related to "reducing speculative activity in the futures and options (F&O) segment."

Given all these measures, says Kamath, there’s been a 20-30% drop in F&O activity on the exchanges and across the brokers from the time these regulations kicked in. "Most of these measures haven’t even been fully implemented, and so, the fullest extent of these measures will be felt next year. Assuming that markets remain sideways, it’s fair to assume that F&O trading will dip even further."

It’s not just F&O — things are starting to cool down in the equity segment as well, he adds. The total equity turnover is back to the level it was a year ago — i.e. around December 2023/January 2024. "We’re still well above where the markets were before the pandemic, but it looks like the craziness may be ending."

He also recounted other notable regulatory changes, including true-to-label charges, STT on F&O contracts, direct payout of securities, dynamic price for F&O stocks, basic services demat account, T+0, and norms for registered investment advisors and research analysts.

Kamath says 2025 will be an interesting year in all senses of the word. He says as the landscape changes, it's important for Zerodha to remain true to its core principles.

Nithin talks about “shinise,” which in Japanese means “old shops”. Japan not only has some of the oldest businesses in history but also the highest number of old businesses.

"A big reason is their philosophy of sticking with the core of what they are good at, and not trying their hand at random, ancillary things. Another inspiring quality is their philosophy of investing back in the communities that enable their success. Kamath says that's what his Zerodha's Raimatter Foundation is trying to achieve.