‘F&O trading is bad for almost 99% of retail traders’: Nikhil Kamath draws ITC parallel, says brokers need to diversify

Zerodha co-founder Nikhil Kamath has compared the risks facing India’s broking industry with the challenges once faced by ITC’s tobacco business, saying businesses in sectors facing rising government scrutiny need to diversify while their core businesses are still doing well.

Kamath made the comments in a LinkedIn post after listening to an episode of The Ken’s podcast Intermission on ITC. He said ITC’s decision to move beyond tobacco and enter businesses such as hotels was a major example of foresight, especially given that the company was not driven by a founder.

“The fact that ITC started diversifying away from its main tobacco business into hotels and other businesses after almost 70 years of existence was an immense feat of foresight. Especially considering ITC was never a founder-driven company,” Kamath wrote.

Kamath said ITC was aware that tobacco was harmful and addictive, and that products that are difficult to ban completely often face tighter regulation and higher taxes over time.

“They knew tobacco was extremely harmful to health and addictive. When something is bad for people but difficult to ban outright, governments invariably keep regulating and taxing it more. Over time, the taxes become so high and the revenues so significant that the government itself ends up in a strange place: ban it or continue taxing it?” Kamath said.

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He then said he saw a similar pattern in the broking industry, particularly because of the growing regulatory focus on futures and options, or F&O, trading.

“I can’t help but see a parallel with the broking industry,” Kamath said.

The comparison comes as regulators continue to raise concerns about retail participation in the derivatives market. A Securities and Exchange Board of India (SEBI) study published in September 2024 found that 93% of individual traders incurred losses in equity F&O between FY22 and FY24, with their combined losses exceeding ₹1.8 lakh crore over the three years.

SEBI has continued to study retail participation in the derivatives market. The regulator’s research listings show that it published fresh studies on the trading behaviour and profitability of individual traders in the equity derivatives segment for FY25 and FY26 on August 20, 2026.

Against this backdrop, Kamath said he does not expect F&O trading to be banned, but believes the sector could face tighter rules and higher taxes.

“F&O trading is bad for almost 99% of retail traders. It is unlikely to be banned outright, but regulation will probably keep getting tighter, and taxes like STT will probably keep going higher,” Kamath wrote.

Kamath said this creates a bigger risk for businesses that operate in sectors where consumer protection is under constant government scrutiny. According to him, regulatory changes can affect not just revenues but an entire business model.

“Running a business in an industry with constant government scrutiny over consumer protection is not easy, to say the least. The risk isn’t just economic, but that regulators can ban entire business models almost overnight,” Kamath said.

For brokers, he said the answer is to diversify before the pressure on the core business becomes too strong.

“So yeah, the only thing we can do is keep diversifying our business while the core business is still doing well,” Kamath wrote.

Kamath said the comparison between ITC and the broking industry came to him while listening to The Ken’s episode on the company.

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“Was listening to Intermission by The Ken, an episode on ITC, and this thought stuck with me,” Kamath wrote.

ITC Limited was established on August 24, 1910, as the Imperial Tobacco Company of India Limited. The company initially focused mainly on cigarettes and tobacco. It entered the packaging and printing business in 1925, partly to support its cigarette business.

ITC’s diversification became more visible in the 1970s. In 1975, it entered the hotel business by acquiring a hotel in Chennai. This marked the beginning of its wider expansion beyond tobacco.

Over the years, ITC expanded into FMCG, hotels, paperboards and packaging, agri-business and information technology. The company changed its name from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970, then to I.T.C. Limited in 1974, and finally to ITC Limited in 2001.