'A massive concentration risk': Nithin Kamath says 80% of broker revenue tied to 2 contracts

India’s stock trading boom has made brokerage businesses look like gold mines but one of India’s top fintech founders says the shine is deceptive.

Nithin Kamath, co-founder of Zerodha, warned in a LinkedIn post that the industry is sitting on a “massive concentration risk” few outsiders recognize. 

His comments come amid growing interest in the brokerage sector, even as structural weaknesses loom large.

Recalling a conversation with a private equity veteran, Kamath said an early investment was rejected in 2008 because a broking firm’s revenue was too reliant on a few clients. 

“As I've mentioned numerous times, a small number of active traders contribute to most of the exchange turnover,” he wrote. “This was a lot worse back then.”

Today, the risk has shifted but not disappeared. While retail participation has exploded, Kamath said over 80% of Zerodha’s revenue—and that of other brokers—now comes from just two derivatives contracts: Nifty and Sensex futures and options.

“That means one change can wipe out a big chunk of our revenues,” Kamath noted. Yet he questioned whether this vulnerability is reflected in how brokerage businesses are valued.

The risks go deeper. India lacks payment for order flow, a revenue stream used by platforms like Robinhood in the U.S. Kamath said Zerodha also avoids this model on principle. 

Add to that regulatory constraints like the quarterly fund settlement rule—where all client funds must be returned once every quarter—and Kamath likened the setup to “a forced bank run.”

Despite these pressures, the sector continues to attract investor attention. But Kamath’s warning is clear: what looks like easy money masks an ecosystem where revenue is fragile and regulation is tightening.

“I wonder why the brokerage business looks so sexy from the outside,” he wrote.

His remarks spotlight a critical tension in India’s financial markets—booming participation but brittle fundamentals.