Zerodha CEO Nithin Kamath said that while KYC records show more investors coming from Tier 2 and Tier 3 cities, the actual trading activity doesn't quite match up.
Nithin Kamath claims investor data could be misleading
"There's a lot of talk about a huge influx of traders from Tier 2 and 3 towns. This data may be a little misleading. Let me explain, Kamath wrote on X.
He added, "If one looks at trading activity by looking at the addresses of users as per their KYC, you'll see a lot of users from Tier 2 and 3 towns. However, if you look at user activity by the IP addresses they use to log in, then the bulk of the activity comes from the top 20 cities. This is because most people don't update their address once they move to a different city."
The entrepreneur explained that if you look at the addresses provided by users during their KYC process, it appears many traders are from Tier 2 and Tier 3 towns.
However, this can be misleading because even if someone is trading from a metro, their account might still show a smaller town, as most Indians do not update their address.
The Zerodha boss remarked, "This is why, for example, you see a lot of activity from Pune and Bangalore because they are among the go-to destinations for people relocating for work."
According to Kamath, it can lead to a false sense that stock market activity is booming in non-metro areas. He warned of interpreting such data, especially if it's being used to talk about how retail investing is growing across the country.
“So yeah, you have to keep this in mind when drawing conclusions about investor participation, deepening of the markets, etc.," he concluded.
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