Nithin Kamath on Market Crash: Trading Activity Plunges Amid Sensex Fall

The Indian stock markets witnessed a significant correction on Friday, February 28, 2024, as the Sensex plunged by 1,414 points, and the Nifty slipped below 22,150. This market downturn erased nearly ₹9 lakh crore in market capitalization of BSE-listed firms.

The crash had a widespread impact across multiple sectors, including IT, tech, auto, and telecom, causing concerns among investors. The primary driver of this decline is growing fears of a global trade war and continued selling pressure from Foreign Institutional Investors (FIIs).

30% Drop in Trading Activity: Nithin Kamath’s Take

Zerodha CEO Nithin Kamath reacted to the market correction by highlighting a massive decline in trading volumes and a reduced number of active traders.

Kamath’s Statement on Trading Activity

“The markets are finally correcting. Given that markets swing between extremes, they can fall more just like they rose to the peak. I've no idea where the markets go from here, but I can tell you about the broking industry. We are seeing a massive drop in terms of both the number of traders and volumes,” Kamath stated in a post on X (formerly Twitter).

According to Kamath, the drop in market activity has led to a 30% decline in trading volume across brokerage firms. For the first time in 15 years, Zerodha is experiencing a slowdown in business due to a lack of market participation.

Impact on Securities Transaction Tax (STT) Revenue

Kamath also pointed out that if the market correction persists, India’s Securities Transaction Tax (STT) revenue could drop by 50% in FY 2025-26. The expected revenue could decline from ₹80,000 crore to ₹40,000 crore, significantly impacting government earnings from stock market transactions.

“Combined with the true-to-market circular, we are seeing degrowth in the business for the first time since we started 15 years ago,” he added.

Why Did the Stock Market Tumble?

Key Reasons Behind the Market Correction

Several global and domestic factors have contributed to the sharp decline in the Indian stock market:

1. Weak Global Economic Indicators

Uncertainty in global economic growth has raised concerns about potential slowdowns, impacting investor confidence.

2. Donald Trump’s Tariff Policies

The possibility of increased trade tariffs under a potential second Trump administration has rattled global markets, leading to sell-offs in emerging economies like India.

3. Continuous Foreign Institutional Investor (FII) Selling

FIIs have been pulling out investments from Indian equities, further adding to the downward pressure on Sensex and Nifty.

4. Sectoral Weakness in IT, Auto & Telecom

Major sectors, including technology, automobile, and telecom, have seen significant losses, contributing to the overall market downturn.

What Lies Ahead for Indian Stock Markets?

While market corrections are cyclical, experts suggest that India’s long-term economic growth prospects remain strong. However, in the short term, volatility and reduced investor participation may continue to impact trading volumes and brokerage revenues.

Market analysts recommend that traders and investors:
✔ Diversify their portfolios to mitigate risks
✔ Avoid panic selling and focus on long-term investments
✔ Stay updated on global economic trends and policies

Conclusion

The recent stock market crash has sent shockwaves through Indian equities, with trading volumes plummeting by 30% and brokerage firms like Zerodha witnessing a slowdown for the first time in 15 years. The decline in market activity, combined with continued FII sell-offs, global economic uncertainties, and policy risks, has significantly impacted investor sentiment.

While market corrections are a natural part of financial cycles, their impact on traders, brokerage firms, and government revenues cannot be ignored. With Securities Transaction Tax (STT) revenue potentially dropping by 50%, the government may also need to assess strategies to sustain market liquidity and investor participation.

Moving forward, experts suggest a cautious approach—emphasizing long-term investing, portfolio diversification, and monitoring global economic indicators. Despite the short-term volatility, India’s strong economic fundamentals provide hope for market recovery in the coming months.