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The popular narrative of increasing stock market participation from Tier 2 and Tier 3 towns in India may not fully align with ground realities, according to Zerodha CEO and co-founder Nithin Kamath.

Sharing his perspective in a recent LinkedIn post, Kamath called attention to the gap between reported user data and actual trading activity.

Although Know Your Customer (KYC) records suggest an uptick in new users from smaller towns, Kamath cautioned against taking that data at face value. He explained that many individuals maintain their hometown addresses on official records even after migrating to larger cities for employment.

IP Data Points to Top Urban Centers

To better understand where trading is actually taking place, Kamath said Zerodha examined log-in patterns using IP addresses. This analysis revealed that most of the trading activity continues to be concentrated in India's major urban hubs.

“When we look at trading activity based on IP addresses — which show where users are actually logging in from — most of it still comes from India’s top 20 cities,” Kamath said. He cited cities like Pune and Bengaluru as prime examples of where working professionals tend to relocate for career opportunities.

This trend, according to Kamath, leads to a skewed perception that investors in smaller towns are driving a new wave of retail market participation. In reality, many of these trades are being executed from metro cities, even though the user profiles may indicate otherwise.

A Word of Caution on Broad Conclusions

Kamath emphasised the need for careful interpretation of such data when assessing investor behaviour across the country. “It’s misleading,” he said, referring to the assumption that Tier 2 and Tier 3 cities are becoming major trading centres.

He further clarified that the insights he shared were based exclusively on Zerodha’s internal data. “This is based on just Zerodha customer data, and this trend may not hold true across the entire industry,” he concluded.

Kamath’s comments offer a nuanced view on investor geography, highlighting the limitations of relying solely on address data when evaluating market trends.