Thanks to the liquidity-driven bull run, we were able to grow >50% in terms of revenue & profitability on an already large base in FY21/22. Every time the press covers our financials, we end up sharing more context to avoid misinterpretation.

Shift to WFH, increased savings, bull market, volatility, IPOs, & India stack led to significant growth in the investor base in the last 2+ years. In almost every bull market, it looks like the broking industry can grow forever, but it cannot—there are significant risks.

Almost all revenue for the industry comes from active traders - & being one requires lots of skill & some luck to do well. Most traders tend to become inactive when they don’t earn. This means the industry needs a steady influx of new active traders even to sustain revenue.

To get new users & hence new traders, you need markets to remain bullish. If the markets take a turn for the worse, the user growth drops, leading to a reduction in active traders & hence revenue. And brokerage firms can do nothing; it is like being a sitting duck.

The stock price and financials of Robinhood over the last few quarters show just how correlated the performance of retail brokers is with market sentiment. It’s a preview of what falling markets can do to retail broking even in India.

The market cap of RH is down to ~$9B from a high of $80B, it still has $6B in cash. This is largely because of the falling new user growth due to the sharp drawdowns in broader US markets (will be much worse this Qtr), leading to much lower MAU, revenues, and rising losses.

In India, we have hit a plateau in terms of new user additions & revenue. We are still not seeing a drop as our markets are holding up. But if markets fell, the impact will be as much as RH in revenue. I keep reminding myself & our team of all of this to temper expectations.

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