Beyond broking: What next for Groww?

From left to right: Cofounders of Groww Harsh Jain, Neeraj Singh, Lalit Keshre and Ishan Bansal. The company started in 2016 with a simple mutual fund distribution product.
From left to right: Cofounders of Groww Harsh Jain, Neeraj Singh, Lalit Keshre and Ishan Bansal. The company started in 2016 with a simple mutual fund distribution product.


  • The stockbroker has the highest number of active users in India and is profitable. But it wants to do much more

Bengaluru: The last month or so has been a busy one for Yash Pathak, 27, a Mumbai-based cricket commentator on digital media channels, as India won match after match in the world cup. That dream run ended on Sunday, when the Australians effortlessly beat the Indian team in Ahmedabad. In another field, however, Pathak’s players continue to perform satisfactorily—last year, with his income rising, he felt the need to expand his investments beyond mutual funds. So, he started investing in stocks through Groww, a discount stockbroking platform.

Pathak first heard of Groww through a friend. “I was unaware of how these platforms work. I was confused between a couple of them, but then took a leap of faith and downloaded Groww. It took 30-35 minutes to finish the entire account opening process, including uploading my documents," Pathak says. Separately, he also opened an account with Zerodha, Groww’s rival, on his mother’s phone, registering it in her name.

“For a first-timer like me, Groww has the easiest user interface. I would watch their Youtube videos and browse through their content before I invested in the initial two-three stocks. The experience has been very satisfactory so far," he said. In less than two years, Pathak has built a portfolio of blue chip stocks, along with short-term and mid-term horizon stocks.

Pathak is one of the millions of Indians who make up Bengaluru-based startup Groww’s expanding customer base. The discount stockbroker made headlines in September when its active user count hit 6.63 million, toppling Zerodha, which counted 6.48 million, from the top spot, as per National Stock Exchange (NSE) data. By October-end, Groww had 6.76 million active investors while Zerodha was at 6.47 million. Zerodha, however, is still the largest in terms of revenue.

According to the NSE, any individual who trades even once on a platform over the previous 12 months is an active user. The term discount broker is used to refer to a (self-service) model where platforms offer stockbroking services at a lower commission, without providing advisory or portfolio management services, unlike the business model followed by traditional brokerages.

Groww, which was formed in 2016, jumped into the digital broking space in mid-2020, during the peak of the pandemic, under Nextbillion Technology Pvt. Ltd. Backed by Tiger Global and Peak XV Partners (formerly Sequoia Capital India & South-east Asia), among others, it has raised $390 million so far, and was valued at $3 billion at its last fund-raising round in 2021.

“There has been a paradigm shift where people want to take control of their finances. Groww allows them to do that," said a senior executive at Groww, who didn’t want to be named. “While the size of the customer base is an important metric, building customer satisfaction and trust are key, and it’s a work in progress. Groww’s focus has been on building products that will bring customers to the platform."

Groww, which is operated by Billionbrains Garage Ventures Pvt. Ltd, clocked 1,278 crore in revenue in 2022-23, up 264% from 350.9 crore a year ago. Net profit jumped to 449 crore from a loss of 239 crore during the same period.

In India’s burgeoning online investment market, which aims to make investing accessible and transparent to everyone, Groww competes not just with Zerodha, but also with Angel One Ltd, Upstox and other stockbrokers.

Groww’s ambition, however, is to do much more. The firm, which started with mutual fund distribution and later got into stockbroking, has ventured into new business verticals such as credit and payments, with more diversification plans in the pipeline.

What drove growth?

Groww was valued at $3 billion in its last funding round in 2021
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Groww was valued at $3 billion in its last funding round in 2021 (Mint Research)

In 2015-end, Harsh Jain, Neeraj Singh, Lalit Keshre and Ishan Bansal, who were executives at e-commerce firm Flipkart, decided to start up. The choice of business was unanimous: financial services.

Flipkart at that point was already set to disrupt India’s e-commerce arena. When the four friends set up Groww, the aspiration was similar: to do what Flipkart had done in e-commerce.

Groww was launched in 2016 with a simple mutual fund distribution product. In April 2018, it started offering direct mutual funds with zero commission. Once it launched stocks in June 2020, targeting do-it-yourself (DIY) young investors, things moved fast. During the lockdown, discount broking firms such as Groww benefited hugely, with a record number of demat accounts opened on smartphones by people wanting to take a shot at stock markets.

Groww witnessed rapid growth and opened about 2 million demat accounts.

Then, in 2021, a record year for fund-raising by tech startups, Groww turned unicorn, after raising $83 million in a round led by Tiger Global. Within six months, it raised another $251 million, in a round led by American investment firm ICONIQ Growth.

However, unlike the bootstrapped Zerodha, which was the first to establish the discount broking model at scale and whose customer acquisition costs are said to be low, Groww spends a lot on acquiring customers, say industry watchers.

The average Groww customer is 26-29 years old and many are first-time users. About 80% of investments or transactions on the platform come from Tier 2, 3, 4 cities and towns. Groww charges 20 (or 0.05%) on every equity delivery, and the same amount on every executed future and options order.

“Groww offered a better user interface and product suitable for today’s environment than what was being offered by incumbents. It came up as a new player with a tech-first approach, focusing on millennials who were looking to deploy their savings into financial securities," said an investor in Groww, on condition of anonymity. “Nearly 70% of customer acquisition by Groww is organic. The company has grown fast but meaningfully."

Bigger ambitions

Nithin Kamath, founder and CEO of Zerodha, had stated that his company’s AMC venture was motivated by the opportunity to create simple products for investors.
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Nithin Kamath, founder and CEO of Zerodha, had stated that his company’s AMC venture was motivated by the opportunity to create simple products for investors.

Initially, Groww used mutual funds to acquire users. Now, it plans to capture the full investment wallet of these users via stocks, insurance, and loans. Going ahead, it will offer the entire suite of financial products a financial consumer would use.

Besides stocks and mutual fund distribution under the Nextbillion Technology arm, the startup launched personal loans in 2022 under Groww Creditserv Technology, after securing an NBFC (non-banking financial company) licence. In August this year, it launched Groww Pay Services Pvt Ltd for payments via the Unified Payments Interface (UPI).

This year, Groww also completed the acquisition of the mutual fund business of Indiabulls Housing Finance for 175 crore, and ventured into the asset management space under the Groww Mutual Fund name. The move will allow it to create and sell its own mutual funds. In October, it announced the launch of the first fund, Groww Nifty Total Market Index Fund.

Going ahead, Groww may launch insurance products and do consumer durables financing, said a person familiar with the development.

“From mutual fund distribution, stock trading to loans and payments, Groww has built a multi-product tech platform with the intent to offer more value to customers. In the coming years, the company will scale these businesses further and introduce newer verticals," the Groww executive said.

Groww has also been a sizeable mutual fund distributor in the country, opening more than 300,000 new systematic investment plans. or SIPs, every month.

Rival Zerodha’s asset management company (AMC), Zerodha Fund House, a joint venture with smallcase, a portfolio investing platform, also launched two passive index equity mutual fund schemes this year. Zerodha founder and CEO Nithin Kamath had earlier said that the AMC venture was motivated by the shallow participation in Indian markets and an opportunity to create simple products for investors.

“Retail trading has ballooned and is growing manifold. Discount broking platforms offer services and products by using tech efficiently, at a cost that dealer-driven brokers cannot match," said Rajesh Baheti, managing director, Crosseas Capital Services Pvt. Ltd, a brokerage firm. “Most discount broking platforms are diversifying into asset management and other things, where they are using revenue from their retail stocktrading to develop their wealth management business."

The competition

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It may have slipped to second place in active user numbers, but Zerodha remains much larger in terms of revenue and profitability. Founded in 2010, it reported 6,875 crore in revenue and a net profit of 2,900 crore in 2022-23. And unlike Groww, which doesn’t charge for opening an account, Zerodha charges 200 from customers, which, in a way, filters out users who are not serious about trading.

Zerodha manages an overall asset base of 3 trillion, making it the largest retail focused broker, co-founder Kamath noted in a 26 September blog post. The company also valued itself at $3.6 billion in September, an 80% jump from its self-valuation of $2 billion in 2021.

But it’s not just Groww and Zerodha that have made big strides on the diversification and growth front. Upstox, backed by Ratan Tata, was set up in 2009. It is the fourth-largest discount brokerage today in terms of active customers, and achieved break-even in 2022-23, with overall revenue surging 44% from a year ago to cross the 1,000 crore mark.

The stockbroker launched Upstox Invest in 2022 to target young, first-time investors looking to explore equity investments and has seen big momentum. It also has Upstox Pro for professional traders.

“Over time, we will onboard a larger number of customers. We will also diversify into new adjacent businesses like insurance, lending and asset management. We will do it when we are ready, not because the competition is doing it," Ravi Kumar, co-founder and CEO of Upstox, told Mint.

Compared to the US, equity retail investor participation in India’s stock market is still very low. “The growth potential for platforms like ours is immense, given the kind of wealth creation that will happen. We will see a few larger discount trading platforms arise in the coming years," Kumar added.

Like Groww, around 80% of Upstox’s customer base is from beyond the metros, and 80-85% are first-time users. It is working on both online and offline initiatives to create awareness and educate people, specially in smaller towns.

After traditional brokerage Angel Broking Ltd transformed into Angel One Ltd in 2021 with a digital-first approach, its client base has touched 17.78 million at a 40% CAGR (compound annual growth rate). It is planning to start retail lending soon, and is also eyeing the wealth management space. Angel One has got in-principle approval for its asset management business.

“Customers are looking for holistic solutions for their financial needs and want them on the same platform. Eventually, all the companies in this space that are trusted by a huge client base and understand tech will offer a wider range of solutions," said Angel One’s chief growth officer Prabhakar Tiwari.

What could go wrong?

The business of new-age platforms could be disrupted due to  tech glitches owing to their end-to-end digital presence.
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The business of new-age platforms could be disrupted due to tech glitches owing to their end-to-end digital presence.

In a July rating rationale on Groww’s stockbroking arm Nextbillion Technology, rating agency Icra said that while the company has initiated diversification through new lines of business, nearly 80% of its broking income in 2022-23 was from futures and options broking. Thus, any downturn in the capital markets may impact its financial performance.

In his blog post, Zerodha’s Kamath wrote that despite phenomenal growth, the stockbroker’s business has plateaued in terms of revenue and profitability.

At the same time, competition in the space is heating up. The success of discount trading platforms in the last two years has drawn new entrants. In September, for instance, HDFC Securities Ltd unveiled Sky, offering brokerage services at 20 per trade for intraday and delivery transactions across segments, similar to what Groww charges.

And while the growth of discount brokers has been phenomenal, with their market share surging to 58% of NSE active clients in 2022-23 from less than 10% till 2016-17, they could very well be laid low by serious tech glitches owing to their end-to-end digital presence. A couple of such mishaps could spark an exodus to another platform, said Alok Churiwala, managing director, Churiwala Securities Pvt. Ltd, another brokerage firm.

Also, in this highly regulated space, market experts believe any regulatory diktats could spring a surprise on these new-age platforms.

As Kamath put it aptly in his blog post: “Almost every bull run in the markets creates the illusion that somehow participation and activity will keep going up forever. We keep discussing internally that we could see a 50% dip in activity and revenue if markets fall in no time. None of it is really under our control. And yeah, one (regulatory) circular is also enough to bring down our revenue by more than 50%."

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