NextFin News - India's largest retail broker, Zerodha, has secured a merchant banking licence from the Securities and Exchange Board of India, clearing the discount-broking pioneer to run initial public offerings and advise companies on raising equity. The approval, granted to Zerodha Corporate Advisors on Sept. 1 and visible on the regulator's website, arrives at a moment of maximum contradiction in India's primary market: fundraising has just logged two consecutive record years for the first time in the country's history, yet beneath the record the machinery is showing stress — average listing gains have collapsed from 30% to 8%, the average IPO is now underwater, and the pipeline is dominated by existing shareholders cashing out rather than companies raising fresh capital.
The licence is more than a new fee line for a brokerage whose earnings have just gone flat. It is a wager on which side of that contradiction will win — and a signal that the firm which opened the stock market to retail India now wants to stand on the issuer side of the counter.
The Deal: What the Licence Allows, and When It Arrived
Zerodha Corporate Advisors Pvt., a unit of Zerodha Broking Ltd., received its Category-I merchant banking registration from SEBI on Sept. 1, according to the regulator's website. Category I is the top tier: it permits the holder to act as lead manager to public issues, run private placements, advise on corporate fundraising, and provide the full range of merchant banking and corporate advisory services. In plain terms, Zerodha can now book the fees that have enriched the established houses — JM Financial, Kotak Mahindra Capital, Axis Capital, ICICI Securities — for steering companies through IPOs, follow-on offerings, and qualified institutional placements.
The application was filed in April 2026, and Zerodha stayed deliberately muted while approval was pending. "We have filed an application for the merchant banking (Category-I) licence with SEBI. We'll be able to share more about our business plans once we receive the licence," a Zerodha spokesperson said in June, confirming the filing through its corporate advisory arm.
The timing is the story. Zerodha is not entering merchant banking in a quiet market. It is walking into a primary market that has just completed something India has never done before. Between April 2025 and March 2026, 112 Indian companies raised ₹1,78,963 crore through mainboard IPOs — 10% above the previous record of ₹1,62,387 crore set in 2024-25, according to India's primary-market tracker. That followed a record ₹1,75,901 crore in calendar 2025. "For the first time in India's history, there have been two consecutive years of all-time high IPO fundraising activity," Pranav Haldea, managing director of the primary-market tracker, said in the data release. "In the past, a strong IPO year almost always was succeeded by a lull lasting two to three years."
That historical pattern is the first hook in the story. The queue, however, says the boom is not yet over. As of early 2026, 84 companies had won SEBI approval to raise roughly ₹1.14 lakh crore, with another 108 awaiting clearance and seeking about ₹1.46 lakh crore — a combined pipeline of more than ₹2.5 lakh crore. And 240 companies filed offer documents in FY25-26, a record, up from 166 a year earlier. JP Morgan's head of India equity capital markets, Abhinav Bharti, has gone further, calling annual issuance of about $20 billion the likely "new normal" for India rather than a cyclical peak.
Why Zerodha Is Moving: The Defensive Logic Behind the Offensive Play
The surface reading is opportunistic: fees are fat, the queue is long, and a licence is a licence. The deeper logic is defensive, and it runs straight through Zerodha's most recent financial statements.
For years, Zerodha's profit engine was simple: retail traders churning futures and options, generating brokerage on a discount-pricing model. That engine has been throttled by regulation. SEBI's tightening of the derivatives market — higher margins, fewer weekly expiries, stricter suitability checks — has cut retail speculation. Nithin Kamath, Zerodha's co-founder, had warned that broking revenue could fall by as much as 20%. The actual outcome for FY26 was milder but still telling: brokerage income fell nearly 11% to ₹2,738 crore from ₹3,066 crore, and income from net transaction charges — the exchange rebates brokers used to collect — fell to zero after regulatory changes.
The full picture is of a franchise searching for its next leg. Net profit rose just 1.2% to ₹4,283 crore in FY26 from ₹4,231 crore, on broadly flat revenue of around ₹8,500 crore, according to Zerodha's annual business update. Interest income slipped 4% to ₹2,269 crore. The offset came from margin funding and annual maintenance charges, which rose to ₹180 crore from ₹160 crore. For a company that has compounded at pace for a decade, flat is a warning light.
Zerodha has already been diversifying — Coin for mutual funds, lending, asset management, the Rainmatter venture arm, international investing, and fixed deposits on Coin. But each of those businesses monetises the investor. Merchant banking monetises the issuer. That distinction is the strategic core of the move. Zerodha sits on one of the largest retail investor bases in India; what it has lacked is a reason for companies — not just their shareholders — to walk through its door. A merchant banking licence gives it exactly that: a foot in the room where capital is raised, where relationships with promoters, CFOs, and private-equity sponsors are built, and where fees are paid upfront rather than dripped out in basis points per trade.
There is also a regulatory tailwind specific to this moment. SEBI's overhaul of the merchant banker framework, notified in December 2025 and effective from January 2026, raised the capital bar — Category I merchant bankers must now maintain net worth of at least ₹50 crore and liquid net worth of ₹12.5 crore — and tightened governance, including restrictions on outsourcing core functions such as due diligence and offer-document preparation. Higher entry standards do not just keep weak players out; they make the licence itself scarcer and more valuable. For a well-capitalised, technology-first firm like Zerodha, the new regime is a moat, not a barrier.
The Cracks Beneath the Record: Is This Structural or Cyclical?
Here is the question the market is not asking loudly enough: is India's IPO boom a structural regime shift, or a cyclical wave about to break? The answer determines whether Zerodha has timed its entry brilliantly or badly.
The structural case is strong, and it is not just about this year's numbers. India's growth over the past decade has produced a deep bench of companies — in technology, financial services, consumer, healthcare, and infrastructure — that have reached the scale and maturity to list. Domestic institutional participation, powered by record mutual-fund SIP inflows, has created a home-grown bid that absorbed supply even as foreign investors sold. In FY25-26, mutual funds overtook foreign portfolio investors as anchor investors for the first time, committing 14.89% of issue value versus 13.38% for FPIs. That is not a one-year phenomenon; it is the maturation of a capital market. Bharti's "$20 billion a year" framing rests on exactly this foundation.
But the cyclical warning signs are equally real, and they are in the same data release that announced the record. The FY26 year ended tepidly: only ₹18,772 crore was raised in the final three months. Average deal size fell 23% to ₹1,598 crore. Average listing gain collapsed to 8% from 30% a year earlier, and only 31% of listings returned more than 10%, down from 71%. As of late March 2026, the average return across 108 listed IPOs had slipped to -7% — the first time the multi-year trend of positive absolute IPO returns had broken. Retail enthusiasm cooled too: average retail applications fell to 12.87 lakh from 21.31 lakh, and retail money applied was 57% above mobilisation, down from 103%.
Most tellingly, the record was built more on exits than on expansion. Fresh capital raised in FY25-26 was ₹70,719 crore — just 40% of the total. Offer-for-sale by promoters accounted for ₹72,687 crore (41%) and by private-equity and venture investors for another ₹23,277 crore (13%). When more than half the pipeline is existing shareholders monetising rather than companies funding growth, the boom is partly a function of favourable valuations and willing buyers — conditions that reverse.
And the broader equity-raising market has already turned. Overall public equity fundraising — including follow-on offerings and qualified institutional placements — fell 18% to ₹3.05 lakh crore in FY25-26 from ₹3.71 lakh crore, dragged down by a near-halving of QIP mobilisation to ₹75,103 crore from ₹1,42,271 crore. Eighteen companies let their SEBI approvals lapse and 15 withdrew their offer documents entirely.
The honest verdict is that both forces are at work, on different clocks. Structurally, India is becoming a permanent large IPO market. Cyclically, the pace of issuance, the quality of listings, and the fees available to merchant bankers will ebb with valuations and secondary-market sentiment. Zerodha's licence is a long-term structural bet placed at a cyclical peak in issuance quality — which is exactly when such bets are most dangerous, and most rewarding.
Who Wins, Who Loses, and the Signal That Would Break the Thesis
The immediate beneficiaries are the companies in the queue. A well-capitalised, technology-driven entrant with a large retail distribution channel can compete aggressively on pricing and execution speed, pressuring fee margins at the mid-market end where incumbents have been most exposed. The parties most at risk are smaller merchant bankers that cannot meet the new capital and governance standards, and full-service brokers whose investment-banking franchises have relied on relationship lock-in rather than distribution.
Zerodha's advantage is distribution; its disadvantage is pedigree. Merchant banking is a trust business built on track record, and lead-manager mandates are awarded on reputation as much as price. Breaking into large-cap mandates will take years. The realistic first wedge is the mid-market and new-age technology segment, where Zerodha's brand recognition among founders and its retail reach matter more than decades of league-table history — the same segment that produced nine new-age tech IPOs raising ₹32,509 crore in FY25-26.
The counter-thesis is straightforward and data-backed: this is a licence acquired at the top of the cycle, and the fee pool is about to shrink. If overall equity fundraising continues to contract, if the ₹2.5 lakh crore pipeline converts into actual listings more slowly than expected, and if listing returns stay negative, Zerodha may have entered the business just as its best years pass. The strongest version of this view comes from the data itself — two record years back-to-back, a weak finish, collapsing listing gains, negative average returns, and an exit-heavy market are the classic signatures of a late-cycle primary market.
The single signal that would falsify the structural-boom thesis is concrete. If mainboard IPO mobilisation in FY27 falls below ₹1.2 lakh crore — a drop of more than 30% from the FY26 record — and the SEBI-approved pipeline fails to convert within two quarters, the "new normal" narrative breaks and the move looks like peak-cycle timing. Conversely, if issuance holds above $20 billion annually through 2027 with average listing returns stabilising above 15% and fresh-capital share recovering toward 50%, the structural case is confirmed.
What to Watch
Three data points will tell the real story over the next six to twelve months. First, Zerodha's own hiring and mandate wins in corporate advisory — a licence without deals is a trophy, not a business. Second, the conversion rate of the SEBI-approved pipeline into completed listings, and whether the 18 companies that let approvals lapse become a trend. Third, whether overall equity fundraising recovers from its 18% decline as QIP activity stabilises, or continues to contract.
Short term, expect fee competition to intensify at the mid-market end of the IPO market, and expect Zerodha to target the new-age and mid-cap segment first. Medium term, success depends on converting retail distribution into issuer relationships — a harder sell than it looks, because companies choosing a lead manager are not choosing a trading app. Long term, if India's primary market does become a structural $20-billion-a-year franchise, the firms that combine distribution, technology, and balance-sheet credibility will capture a disproportionate share of the fees.
"We have filed an application for the merchant banking (Category-I) licence with SEBI. We'll be able to share more about our business plans once we receive the licence."
Zerodha's licence is a bet that India's capital markets have crossed a threshold from which there is no return — and that the broker which opened the market to retail India is now positioned to help the next generation of companies enter it. The record says the boom is real. The cracks say the easy money has been made. Which one wins will decide whether this was brilliant timing or a very expensive lesson in cycle recognition.
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