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Volume cycle turning, new businesses building up

* The regulatory overhang is easing, and Groww is well placed to gain. Broker and exchange stocks have corrected because options volumes dropped after two regulations took effect: the RBI's curbs on bank funding to prop traders (effective Jul'26) and the CAS framework (effective Aug'26). However, both are hurting less than the market feared. Prop traders have already found other funding, though at a higher cost. Volumes recovered by more than 20% in Sep'26, following the Aug'26 dip. The consultation paper also signals that CAS will be modified soon. We believe Groww should be a key beneficiary as volumes recover. A sideways market may continue to affect volumes in the near term. However, Groww is building new revenue streams in broking and beyond, which reduces its dependence on derivatives.

* Commodities offer a long runway for growth as penetration remains low. While Groww’s commodities business has grown strongly since launch, penetration among its active derivatives traders remains below the industry average. We expect growth to outpace the industry as awareness and adoption increase.

* MTF presents a significant opportunity to expand market share and improve cash-segment realizations. Groww’s MTF book has reached INR37.8b in 1Q, but its market share of less than 3% remains well below its 15% share of the cash segment. Its strong balance sheet provides ample capacity to scale the book and narrow this gap over time. As MTF trades are charged on an ad valorem basis, higher MTF activity can also improve cash-segment realizations.

* Lending, wealth management, and AMC are the next growth engines. These businesses are at different stages of build-out. Groww has a proven record of launching products at little extra cost, so each should add to profitability. The company has also not yet used its balance sheet to drive growth, which leaves a large lever untouched.

* Operating leverage multiplies earnings. In 1QFY27, Cost-to-Serve/Cost-to-Grow/ Cost-to-Operate dipped to 10.7%/9.9%/11.5% of platform revenue, from 14.6%/ 11.9%/18.3%. These improvements drove 101% YoY EBITDA growth and 94% YoY PAT growth. As customers use more products, each extra rupee of revenue should convert at higher margins.

* We expect Groww’s revenue/EBITDA/PAT to clock a CAGR of 31%/37%/38% over FY26-28. Our one-year TP is INR240, implying 38x FY28E EPS. Reiterate BUY.

Broking: Regulatory normalization and deeper customer monetization support growth

* Groww added 154k net active clients on the NSE in Sep’26 on a YoY basis, outpacing the industry’s net addition of 105k clients over the same period, taking transacting users to 23.5m (+24% YoY) as of Sep’26. Stock ADTO market share rose 3.3pp YoY to 15.1%, while retail equity-derivative market share increased to 11% from 7.2%.

* F&O contribution to total income declined to 52% in 1QFY27 from 56.4% in 1QFY26, offset by increasing contributions from MTF and commodities. We expect broking revenue to grow at 22% CAGR over FY26-28E, led by higher customer engagement and product penetration.

* Stocks: Deeper monetization of existing users

** Retail stock ADTO market share increased to 15.1% (+3.3pp YoY), despite a sequential moderation following tighter risk controls. Stock ADTO grew 48% YoY, indicating sustained share gains.

** With 22m transacting users and INR3.6t of customer assets, MTF penetration remains the key lever to improve cash-segment realizations. We expect the stock-segment revenue to record 25% CAGR over FY26-28, supported by 10% order CAGR, active-user additions, and higher product attachment.

** Key monitorables: cash-equity market share, order growth, active users, and revenue per customer.

* Equity derivatives: Volume recovery remains the key near-term driver

** Retail equity derivatives maintained the market share at 11% in 2QFY27 (on a QoQ basis) vs. single-digit last year. We expect segment revenue to clock 16% CAGR over FY26-28, driven by market-share gains and gradual normalization in trading activity.

** CAS implementation on 3 rd Aug’26 triggered heightened volatility, particularly on expiry days, with F&O/cash ADTO declining 16%/2% MoM in Aug'26. Following SEBI's notification to partially reverse CAS implementation, F&O/cash ADTO recovered 20%/4% MoM in Sep'26.

** Key monitorables: F&O volumes, market share, regulatory changes, and expiryday activity.

* Commodities: Low penetration supports outsized growth

** Commodity derivatives reached 435k active users in 1QFY27 (+10.7% QoQ), with a 2.6% attach rate to overall active users. Retail notional ADTO market share across MCX and NSE stood at 28.6%, indicating rapid share capture since launch.

** Penetration remains below the industry average among Groww's active derivative traders, providing headroom for further adoption. We expect the commodity-segment revenue and orders to register 110% CAGR over FY26- 28E, albeit on a low base.

** Key monitorables: active users, attach rate, ADTO market share, and revenue contribution.

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