A Strategic Roadmap for India’s Capital Market Stakeholders

Navigating Leaner Markets: A Strategic Roadmap for India’s Capital Market Stakeholders

Introduction

The Indian stock market in 2025 is experiencing a cyclical contraction in trading volumes across both cash and derivative segments. This decline directly affects key market participants—traders, stockbrokers, exchanges, depositories, and the government. While such downturns strain traditional income streams, they also create a necessary inflection point for innovation, diversification, and investor-centric transformation.

1. Traders: Adapting to Leaner Times

When trading volumes are lower, it generally means less liquidity and potentially smaller, less frequent price movements. This challenges traditional high-volume, quick-profit strategies.

Suggestions for Traders:

Adapt Trading Strategies:

Focus on Quality Over Quantity: Instead of placing many small, quick trades, the emphasis should shift to meticulously researching and identifying a few high-conviction opportunities. This means spending more time on pre-trade analysis and less on in-trade execution speed.

Swing Trading/Positional Trading: This involves holding positions for days or weeks to capture larger price swings that might be less frequent but more substantial. It requires a different mindset than day trading – less screen time, more patience, and a deeper understanding of macro-economic factors and company-specific news that can drive medium-term trends. For example, instead of trying to scalp 0.5% profit on an intraday move, a swing trader might aim for a 5-10% move over several days.

Value Investing Principles: Even for active traders, understanding value investing helps identify fundamentally strong companies that are currently undervalued. In a low-volume environment, such companies might not see quick price appreciation, but they offer a higher margin of safety and potential for long-term growth. This can involve holding a core portfolio of such stocks while still actively trading a smaller portion.

Derivatives for Hedging, Not Just Speculation: When directional moves are less clear, derivatives (like options and futures) become invaluable tools for risk management. Traders can use them to hedge their existing cash market portfolios against potential downturns, reducing overall portfolio volatility. For instance, buying a put option on a stock they own can protect against a sharp fall without having to sell the underlying shares.

Enhance Analytical Skills:

Deep Dive into Fundamental Analysis: This goes beyond just looking at P/E ratios. It involves understanding a company's business model, competitive landscape, management quality, balance sheet strength, cash flow generation, and future growth prospects. This skill becomes crucial when market sentiment isn't strong enough to move prices on technicals alone.

Advanced Technical Analysis: While basic technical indicators might become less reliable in low-volume, choppy markets, advanced techniques can still offer insights. This includes understanding divergences, studying volume at different price levels (Volume Price Analysis), analysing multi-timeframe charts, and identifying less obvious chart patterns. The key is to confirm signals with multiple indicators and be cautious of false breakouts.

Risk Management:

Stricter Risk-Reward Ratios: If win rates might be lower, each successful trade needs to generate proportionally higher returns to cover losses from unsuccessful ones. Aim for at least a 1:2 or 1:3 risk-reward ratio (e.g., risking ₹1 to make ₹2 or ₹3).

Smaller Position Sizes: This is a direct consequence of increased risk. By reducing the capital allocated to each trade, the impact of a losing trade on the overall capital is minimised. This allows traders to stay in the game longer during tough periods.

Disciplined Stop-Loss: In illiquid markets, prices can gap or move sharply. A pre-defined stop-loss (either mental or system-based) is non-negotiable to prevent small losses from turning into catastrophic ones. Reviewing and adjusting stop-losses based on market conditions is also important.

Diversification: Putting all capital into equities, especially in a challenging market, can be risky. Exploring other asset classes like:

Debt Instruments: Bonds, government securities, or debt mutual funds can offer more stable, albeit lower, returns and provide a cushion during equity market downturns.

Gold/Silver: Precious metals often act as a safe haven during economic uncertainty and can be a good diversifier.

Real Estate: For long-term wealth creation, real estate can be an alternative, though it's less liquid.

Continuous Learning: Market dynamics are constantly evolving. Traders must commit to ongoing education – reading financial news, following economic indicators, understanding geopolitical events, and staying updated on regulatory changes. Learning from experienced mentors or taking advanced courses can also be beneficial.

2. Stock Brokers: Shifting from Transactional to Relationship-Based Revenue

For stockbrokers, lower trading volumes mean a direct hit to their primary revenue source: brokerage commissions. They need to pivot from solely relying on transaction fees to building more sustainable, value-added relationships with clients.

Suggestions for Stock Brokers:

Diversify Revenue Streams:

Wealth Management and Advisory Services: This is perhaps the most crucial shift. Instead of just executing trades, brokers need to become financial advisors. This includes offering services like:

• Financial Planning: Helping clients set and achieve long-term financial goals (retirement, child's education, house purchase).
• Portfolio Management Services (PMS): Managing clients' portfolios professionally for a fee based on Assets Under Management (AUM) rather than per trade.
• Mutual Fund Distribution: Earning commissions from distributing various mutual fund schemes (equity, debt, hybrid).
• Insurance & Other Products: Cross-selling insurance, fixed deposits, and other financial products.

Research & Analytics: Developing proprietary, high-quality research reports, market commentaries, and analytical tools (e.g., advanced screeners, AI-powered insights) that clients might pay a premium for, or that can be used to attract high-value clients.

Investment Banking Services (for larger brokers): Expanding into areas like initial public offerings (IPOs), follow-on public offers (FPOs), qualified institutional placements (QIPs), mergers & acquisitions (M&A) advisory, and debt syndication for corporate clients. These are high-value, albeit infrequent, transactions.

Lending Against Securities (LAS): Providing loans to clients against their stock holdings. This generates interest income and can also encourage clients to hold their portfolios with the broker.

Technology & Efficiency:

Automate Operations: Investing in Robotic Process Automation (RPA) and AI to automate repetitive back-office tasks like client onboarding, account reconciliation, compliance checks, and report generation. This significantly reduces operational costs and human error.

Advanced Trading Platforms: Offer state-of-the-art trading platforms with intuitive interfaces, real-time data, advanced charting tools, algorithmic trading capabilities, and integrated research. A superior platform can be a key differentiator.

Client Engagement & Education:

Financial Literacy Programs: Conduct regular webinars, online courses, and physical workshops on topics like "Introduction to Stock Market," "Investing in Mutual Funds," "Retirement Planning," and "Risk Management." Educated clients are more confident and likely to invest more broadly.

Personalized Service: Assign dedicated relationship managers to high-net-worth clients and active traders. Personalized attention, pro-active advice, and quick resolution of queries build strong client loyalty.

Cost Rationalization:

Review Marketing Spends: Optimize marketing budgets by focusing on digital channels, content marketing, and targeted campaigns that yield higher ROI.

Optimize Branch Network: Re-evaluate the need for physical branches versus digital presence. Some smaller, less profitable branches might need to be consolidated or converted into pure advisory hubs.

Vendor Management: Renegotiate contracts with technology providers, data vendors, and other service providers to ensure competitive pricing.

Attract Long-Term Investors: Shift marketing and sales efforts towards individuals looking for long-term wealth creation rather than just speculative trading. These clients might trade less frequently but often have higher AUM and are more receptive to advisory services.

3. Stock Exchanges: Innovating Beyond Transaction Fees

Stock exchanges are the backbone of the market, and a dip in trading volumes directly impacts their core transaction fee revenue. They must innovate their offerings and services.

Suggestions for Stock Exchanges:

Enhance Product Offerings:

New Asset Classes/Segments:

SME & Startup Listings: Actively promote and simplify the listing process for Small and Medium Enterprises (SMEs) and startups. This expands the universe of listed companies and potentially brings in future trading volumes as these companies grow.

Green Bonds & Social Bonds: Facilitate the listing and trading of sustainable finance instruments, tapping into growing environmental, social, and governance (ESG) investing trends.

Carbon Credit Trading: Explore establishing a framework for trading carbon credits, which could become a significant segment in the future.

Commodity Derivatives (further innovation): Go beyond basic commodities to more niche or refined commodity derivatives.

International Collaborations: Partner with leading global exchanges for dual listings, cross-border trading initiatives, or technology sharing. This can attract foreign capital and increase the global visibility of Indian companies.

Technology & Data Services:

Advanced Data Analytics: Leverage their vast trove of trading data to offer high-value data products and analytical services to institutional investors, hedge funds, research houses, and even regulators. This could include real-time market depth data, historical trading patterns, anonymized participant behaviour data, and custom analytical reports.

Blockchain & DLT Adoption: Invest in research and development for using Distributed Ledger Technology (DLT) for post-trade processes (clearing and settlement). This can enhance efficiency, reduce settlement cycles, lower counterparty risk, and potentially attract more institutional participation by making the market more robust.

Cloud Computing & AI/ML: Utilize cloud infrastructure for scalability and resilience, and deploy AI/ML for real-time market surveillance, anomaly detection (for market manipulation), and personalized services for members.

Cost Optimization:

Operational Efficiency: Continuously optimize their internal operations using lean methodologies and automation to reduce fixed and variable costs.

Cybersecurity Investments: While an expense, robust cybersecurity is critical to maintaining trust and preventing costly breaches.

Regulatory & Policy Advocacy:

Collaboration with SEBI & Government: Work closely with the regulator (SEBI) and the Ministry of Finance to suggest policy changes that can deepen capital markets, such as simplifying investment norms for foreign investors, streamlining listing requirements, or providing tax incentives for specific market activities.

Market Making Incentives: Propose incentives for market makers to ensure liquidity in less frequently traded securities, even during low-volume periods.

Market Development & Education:

Investor Awareness Programs: Partner with brokers, depositories, and financial education bodies to run nationwide campaigns promoting financial literacy and the benefits of long-term investing in capital markets.

Academic Collaborations: Engage with universities and business schools to foster research in finance, provide market data for academic studies, and groom future talent for the financial industry.

Diversify Beyond Core Trading Fees:

Index Licensing: Generate significant revenue by licensing their proprietary indices (e.g., Nifty, Sensex) for use in mutual funds, ETFs, and other financial products.

Technology Services: Offer their expertise in exchange technology, surveillance, and data management to other smaller exchanges or financial institutions globally.

4. Depositories

In an environment of declining trading volumes, depositories—being the custodians of securities and facilitators of post-trade settlements—must evolve from pure back-end infrastructure to proactive enablers of investor confidence and market deepening.

Enhance Investor Services & Engagement

Simplified Onboarding: Collaborate with fintechs to enable seamless, fully digital account opening using Aadhaar, DigiLocker, and e-signatures—especially in Tier 2/3 cities.

Investor Dashboards: Develop personalized, intuitive dashboards that consolidate holdings, dividends, corporate actions, tax statements, and performance analytics.

Proactive Communication: Send timely alerts and education messages (e.g. rights issue deadlines, suspicious transactions, portfolio summaries).

   Product Innovation for Revenue Diversification

Tokenization of Assets: Prepare infrastructure to support tokenized securities (bonds, equities, REITs), allowing fractional ownership and potentially new investor classes.

Demat of Non-Equity Products: Expand beyond listed securities into dematerialization of unlisted corporate bonds, insurance policies, sovereign gold bonds, and even education or carbon credits.

Retail Debt Market Integration: Actively support government and corporate retail bond programs through simplified custodial services.

Facilitate Long-Term Investment Behavior

Integrated SIP Framework: Offer a central, depository-led Systematic Investment Plan (SIP) for direct equity investors—auto-executed and held in demat.

Consolidated Digital Nomination: Streamline nomination and succession planning tools so investors can assign beneficiaries across all holdings in one go.

ESG Preferences Mapping: Allow tagging of ESG investment preferences to holdings, aiding both investor choice and market transparency.

Strengthen Infrastructure & Security

Advanced Cybersecurity: Invest in zero-trust architecture, endpoint detection, and AI-driven threat surveillance to safeguard investor data and digital assets.

RegTech Partnerships: Collaborate with SEBI to automate regulatory compliance and flag anomalies across accounts through real-time alerts.

Disaster Recovery & Uptime Guarantees: Offer robust SLAs and 24x7 uptime to maintain market confidence during volatile or low-liquidity periods.

Financial & Digital Literacy Expansion

• PAN-India Campaigns: Lead awareness drives on “Why Hold in Demat?” covering costs, tax benefits, and safety features—via digital media, vernacular content, and partnerships with colleges.
• Gamified Learning Modules: Introduce app-based quizzes, badges, and rewards for young investors to learn about settlement cycles, rights issues, and pledging.
• Village-Level Investor Clinics: Use mobile vans or partnerships with CSCs (Common Service Centres) to penetrate rural markets.

Collaborative Ecosystem Development

• Unified Holding Statement (UHS): Work with RTAs, AMCs, and insurance companies to provide a single monthly snapshot of all financial assets—demat and non-demat.
• Blockchain Consortiums: Explore common ledgers with exchanges and brokers to automate settlement, reduce T+1 friction, and pre-validate fund/securities availability.
• API Economy Participation: Provide open APIs for fintechs and advisors to build services around demat data (with consent architecture).

Depositories sit at a powerful intersection of technology, trust, and transparency. By expanding their role from custodians to connectors, they can play a central role in rebuilding market confidence, deepening participation, and sustaining capital market vibrancy—even in low-volume climates.

5. Government: Fostering a Robust and Fair Market Ecosystem

The government's primary interest is a stable and growing economy, which includes a vibrant capital market. While STT collection is a concern, the long-term health of the market is paramount.

Evaluate STT Rates:

Review STT Structure: Conduct a comprehensive review of the STT structure in consultation with market participants (exchanges, brokers, investors). While STT provides easy-to-collect revenue, excessively high rates, especially on derivatives, can potentially stifle liquidity and drive trading to other jurisdictions or less regulated channels.

Dynamic STT or Differentiated Rates: Consider if a dynamic STT (adjusting based on market conditions) or differentiated rates for various types of transactions (e.g., lower for long-term delivery trades vs. higher for intraday/futures) could be beneficial. The goal could be to encourage genuine capital formation rather than just short-term speculation.

Policy Measures for Market Growth:

• Boost Retail Participation:

Simplified KYC & Onboarding: Streamline the Know Your Customer (KYC) process, perhaps integrating it more seamlessly with existing digital IDs (like Aadhaar) to make it easier for new investors to enter the market.

Financial Literacy Push: Launch nationwide campaigns through public broadcasters and educational institutions to improve financial literacy among the general public, particularly in semi-urban and rural areas.

Tax Incentives for Long-Term Investing: Explore providing additional tax incentives for long-term equity investments (e.g., higher deductions under Section 80C, or longer holding periods for LTCG benefits).

Attract Foreign Capital: Continue to liberalise foreign investment norms (FPI and FDI) in Indian companies and financial markets. Ensure a predictable and stable regulatory and tax environment to build investor confidence.

Promote Corporate Listings: Simplify regulations for companies to go public, particularly for promising startups and SMEs, while maintaining investor protection standards. This expands the investable universe.

Broaden Tax Base:

Comprehensive Tax Reforms: Instead of relying heavily on specific transaction taxes, the government could focus on overall tax reforms that broaden the tax base across various sectors of the economy. A stronger economy naturally leads to higher corporate profits and individual incomes, which ultimately translates to higher direct and indirect tax collections.

Crackdown on Tax Evasion: Intensify efforts to curb tax evasion across all forms of income to ensure a fairer and more robust tax collection system.

Invest in Digital Infrastructure:

• Digital Public Infrastructure: Continue to invest in India's digital public infrastructure (like India Stack – Aadhaar, UPI, DigiLocker). This can be leveraged to create more efficient and secure financial market operations.
• Regulatory Technology (RegTech) & SupTech (Supervisory Technology): Invest in advanced technology for market surveillance, data analytics for risk assessment, and efficient regulatory reporting to maintain market integrity and prevent fraud.

Long-Term Economic Growth: The most fundamental solution to sustained market volumes and STT collection is robust and inclusive economic growth. The government must focus on:

Fiscal Prudence: Maintaining a stable macroeconomic environment with controlled inflation and a healthy fiscal deficit.

Infrastructure Development: Investing in physical and digital infrastructure to boost productivity and attract investment.

Ease of Doing Business: Continuously improving the business environment to encourage entrepreneurship and job creation.

Skill Development: Investing in education and skill development to create a productive workforce.

By taking a holistic approach, considering both short-term revenue impacts and long-term market development, the government can help foster a resilient and attractive capital market ecosystem.

Conclusion

Declining trading volumes should not be interpreted solely as a threat to income or activity—it’s a stress test for the market’s structural resilience and inclusivity. Each stakeholder must now lean into its strategic strengths: traders into discipline and patience; brokers into advisory depth; exchanges into product and data innovation; depositories into custodial intelligence and connectivity; and the government into enabling a predictable, investor-friendly environment. The next leap for Indian capital markets may not be measured by volume spikes but by value creation, trust enhancement, and broader participation.