For most of its existence, Zerodha has been the great disruptor of Indian broking — the bootstrapped underdog that killed brokerage fees, onboarded millions of first-time traders, and built a profitable business without burning venture money. Now, with the easy growth of the retail-trading boom flattening out, the company is making its most ambitious bet yet: it wants to advise companies on going public and getting bought.
The move would push Zerodha squarely into the world of investment banking, a business with entirely different economics, relationships and risks from the app-based broking that made it famous. It is also a tell. When India’s most disciplined fintech starts hunting for new revenue streams, it is worth asking what it sees coming for the broking model as a whole.
The move
According to a report by Inc42, Zerodha is seeking approval from the Securities and Exchange Board of India (SEBI) for a Category I merchant-banking licence. That licence is the gateway to high-margin capital-markets work: managing initial public offerings, running book-building processes, and advising clients on fundraising and mergers and acquisitions. It is the same regulatory permission that underpins the deal franchises of established players.
The application does not exist in a vacuum. Zerodha is reportedly among more than a dozen applicants awaiting SEBI’s nod, a signal that the merchant-banking lane is suddenly crowded with hopefuls eyeing the same fee pool. For Zerodha specifically, it is the latest in a steady series of steps away from pure broking. The company has already expanded into lending, built an asset-management arm, and made startup investments through its venture activity. A merchant-banking licence would slot in as another pillar of a widening financial-services footprint — not a pivot away from broking, but a deliberate attempt to stop being defined by it.
Why now
Timing is the most revealing part of this story. The push comes as the core broking engine is under visible strain.
SEBI’s tightening of the futures and options (F&O) regime has reshaped the most lucrative corner of retail trading. The regulator’s measures — aimed at curbing speculative losses among retail derivatives traders — have cooled the very activity that fed a large share of brokerage volumes during the post-pandemic boom. Layer a broader equities slowdown on top of that, and the transaction-led revenue model starts to show its cyclicality.
The numbers tell the tale. Per Inc42, Zerodha’s operating revenue fell roughly 12% in FY25 to about ₹8,847 crore, while net profit declined around 23% to approximately ₹4,237 crore. Those are still enormous, enviably profitable figures for a company that took no outside funding — but the direction of travel matters more than the absolute size. A business built on the volume of trades is exposed whenever the regulator or the market mood dampens trading.
There is competitive pressure too. The same Inc42 report notes that Zerodha’s active client base slipped around 2% between October 2025 and April 2026, even as rivals Groww and Dhan grew their active users by roughly 8% and 7% respectively over a comparable stretch. Zerodha effectively created the modern Indian discount-broking category; it now finds itself defending share against younger, aggressively growing competitors in a market that is no longer expanding at boom-era speed. When the pie stops growing and your slice is shrinking at the margin, the case for new revenue lines gets a lot easier to make.
The diversification logic
Strip away the regulatory jargon and the strategic logic is straightforward: reduce dependence on transaction-led broking, and build a broader, more durable financial-services stack around the relationship Zerodha already has with millions of investors.
Broking is a wonderful business in a bull market and a punishing one when volumes dry up. Revenue rises and falls with the market’s heartbeat, and a single regulatory intervention — as the F&O curbs demonstrated — can reset the baseline overnight. Advisory and capital-markets work, by contrast, are tied to a different cycle: companies raise money and do deals across market conditions, and the fees are mandate-based rather than per-trade. Adding merchant banking to lending and asset management spreads Zerodha’s bets across the revenue map.
The deeper play is about monetising trust and distribution. Zerodha’s most valuable asset is arguably not its trading engine but its credibility — a brand that retail India associates with low costs, plain speaking and an absence of the hard-sell tactics common in finance. It also sits on a vast distribution network of investors who already keep money and attention on its platform. A merchant-banking arm could, in theory, channel that distribution into IPOs and offerings, while the advisory side leans on the institutional respect Zerodha has accumulated. The bet is that a name built on consumer trust can be extended up the value chain to issuers and dealmakers.
It is the natural endpoint of a logic Zerodha has followed for years: own more of the financial life of its users and the companies they invest in, rather than just the trade.
What to watch
Ambition is cheap; execution in investment banking is not. There are real reasons to keep expectations grounded.
- Entrenched competition. The IPO and M&A advisory business is dominated by established investment banks with decades of issuer relationships, dedicated deal teams, syndication muscle and institutional placement networks. Winning mandates is a relationship game played over years, not an interface that can be redesigned for elegance. Zerodha’s disruptor playbook — better product, lower cost, retail scale — does not translate cleanly to a business where the buyers are CFOs, promoters and boards, not first-time app users.
- Margins and culture. Merchant banking is people-heavy and bespoke, the opposite of the lean, automated, low-headcount model that made Zerodha so profitable. Building or buying senior banking talent is expensive, and the unit economics look nothing like a broking app. Whether Zerodha’s famously frugal culture can sustain a high-cost advisory operation without diluting its core profitability is an open question.
- Conflict-of-interest questions. A firm that both advises companies raising capital and distributes their securities to its own retail investor base sits on a sensitive line. SEBI’s structural separations and disclosure norms exist precisely to manage such conflicts, but the perception risk is real for a brand whose entire equity is built on being seen as on the investor’s side. How Zerodha walls off advisory incentives from its retail distribution will be worth scrutinising.
- The broking-to-platform shift. Zoom out, and Zerodha’s move fits a pattern visible across the industry: brokers are racing to become full-stack financial platforms — lending, wealth, asset management, payments, now capital markets — because pure broking is too cyclical and too commoditised to stand alone. The discount-broking war drove fees toward zero; the next war is over who owns the broadest, stickiest financial relationship. A merchant-banking licence is one more move in that larger game.
None of this guarantees success. Zerodha could find that investment banking is a slog of slow-won mandates and thin early returns, or that the cultural fit is poor. But the strategic intent is clear and, frankly, rational. A company facing softer broking revenue, regulatory headwinds in its most profitable segment, and rising competition is doing what diversified financial firms eventually do — chasing the higher reaches of the value chain rather than waiting for the next bull market to bail it out.
The bigger signal is for everyone else. When the company that defined Indian discount broking decides broking alone is not enough, it is effectively conceding that the model it built has a ceiling. The rest of the industry has already gotten the message. The question now is who executes the platform transition best — and whether trust, the one thing Zerodha has more of than anyone, can be carried all the way from the retail app to the IPO boardroom.
