Upstox Broadens Financial Horizons as Regulatory Landscape Shifts
Tiger Global-backed Upstox, one of India's leading online brokers, is strategically expanding beyond its core broking business by applying for non-banking financial company (NBFC) and asset management company (AMC) licenses. This diversification move comes as prolonged regulatory scrutiny on retail trading in futures and options has significantly clouded the growth outlook for the traditional broking industry.
Navigating Regulatory Headwinds and Profit Projections
Ravi Kumar, co-founder and CEO of Upstox, revealed in an interview that while growth nearly flattened in the fiscal year ending March 2025 (FY25), the company anticipates its profits to double in the ongoing FY26 and the subsequent FY27 financial years. This optimistic forecast is primarily driven by a refined focus on high-value, active traders, which has substantially increased the average revenue per active user (Arpu) and improved client retention rates.
"Our Arpu has surged by over 40%, and we likely boast one of the industry's leading retention rates among high-value traders, approaching almost 90%," Kumar stated, highlighting the effectiveness of their targeted strategy.
Impact of Regulatory Measures on the Broking Sector
The Indian online broking industry has faced considerable challenges due to stringent measures implemented by the Securities and Exchange Board of India (Sebi) and the finance ministry aimed at curbing speculative trading. Since 2024, Sebi has intensified risk norms across derivatives trading by:
- Raising margin requirements
- Restricting weekly options expiries
- Limiting retail access to high-risk products
- Revising broker incentives to minimize excessive churn
The regulatory pressure escalated further after Finance Minister Nirmala Sitharaman increased the securities transaction tax (STT) on derivatives trades in the Union Budget for 2026–27. Kumar described FY25 as a "fairly difficult" year for the industry, with regulatory changes acting as repeated "speed bumps" to growth. Upstox's revenue growth slowed to about 9% year-on-year, reaching approximately ₹1,208 crore, a sharp deceleration from the Covid-induced surge.
Financial Performance and Strategic Diversification
Despite these hurdles, Upstox's focus on high-Arpu users has driven impressive financial improvements in FY26. The company's EBITDA has grown by nearly 120% compared to the previous year, while profit after tax (PAT) is tracking at about 2.25 to 2.3 times last year's figures, with significantly expanded PAT margins. In FY25, profit stood at roughly ₹215 crore.
Kumar emphasized that Upstox is operating under the assumption that regulatory scrutiny on derivatives and active trading will intensify rather than diminish. Consequently, the company is actively exploring new revenue streams within insurance, asset management, and lending to build a more resilient, full-stack financial institution.
- Insurance: Currently in early stages with minimal revenue contribution, but Upstox is aggressively investing in leadership, distribution, and product development to scale this business over the next 12–18 months.
- Asset Management and NBFC: The company has formally applied for AMC and NBFC licenses, viewing lending as a long-term strategic option rather than an immediate growth lever.
- Algorithmic Trading: Upstox is capitalizing on Sebi's decision to permit algo trading for retail investors starting April this year, investing in backend infrastructure for high-uptime, low-latency programmatic trading.
Expanding Product Portfolio and Market Position
Upstox has already witnessed positive results from some of its diversification efforts. The average daily turnover in commodities has more than doubled, with revenue growing by almost 100%. Similarly, its margin trade facility has experienced over a twofold increase in turnover year-on-year, and the systematic investment plan (SIP) platform volume has grown by more than 35% in the past year.
Founded in 2009 as a proprietary trading firm by Ravi Kumar, Raghu Kumar, and Shrinivas Viswanath, Upstox pivoted to retail broking in 2012. The company has raised about $220 million from investors like Tiger Global Management and Kalaari Capital, achieving a valuation of $3.5 billion in 2021. In 2024, Upstox repurchased a 5% stake from early angel investor Ratan Tata, delivering a 10x return on his original investment.
Industry-Wide Trends and Future Outlook
Upstox is not alone in its diversification strategy. Rival broker Groww has also indicated that regulatory changes and weaker market conditions are impacting business, while Kotak Securities noted in a January analyst report that market cycles, shifts in retail investor behavior, and prolonged regulatory scrutiny are key risk factors. Brokerage firm Dhan is similarly exploring segments like insurance as trading volumes decline.
Despite these industry challenges, Kumar affirmed that Upstox currently has "no need for us to raise any kind of primary funding right now." While a public listing remains a future possibility, the company values the flexibility of remaining private to experiment with new business lines without short-term market pressures. This stands in contrast to competitors like Groww, which raised nearly $1 billion in total funding across its pre-IPO and public listing phases, and Dhan, which secured $120 million in a funding round led by Hornbill Capital and MUFG Bank.
As regulatory frameworks continue to evolve, Upstox's strategic pivot towards diversified financial services positions it to navigate uncertainties while capitalizing on emerging opportunities in India's dynamic financial landscape.
