“Don’t Jump to Conclusions”: Nithin Kamath Debunks Tier 2, 3 Trading Surge Based on KYC Data

India’s retail investing ecosystem is evolving fast, and a key narrative in recent years has been the apparent explosion of equity market participation from Tier 2 and Tier 3 towns. But according to Zerodha CEO and co-founder Nithin Kamath, this story may not be as straightforward as it seems.

“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,” Kamath cautioned in a recent post on social media.

 

KYC Address ≠ Trading Location

Kamath explained that much of the analysis around investor demographics is based on KYC (Know Your Customer) address data, which doesn’t always reflect where a trader actually resides or trades from.

“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,” he wrote.

However, when Zerodha dug deeper and analyzed IP address data—which captures the physical location of where users log in and place trades—a different picture emerged.

Top 20 Cities Still Dominate Equity Activity

“[But] 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,” Kamath pointed out.

This discrepancy exists because most users don't update their KYC address after moving. As a result, people originally from smaller towns who have relocated for work to urban centers like Bengaluru or Pune are still counted under Tier 2/3 town statistics.

“This is why, for example, you see a lot of activity from Pune and Bangalore—they are among the go-to destinations for people relocating for work,” Kamath noted.

Implications for Market Analysis

Kamath’s insights serve as a caution to analysts and policymakers who may be using KYC-based metrics to measure financial inclusion or the deepening of capital markets in smaller Indian towns. “You have to keep this in mind when drawing conclusions about investor participation, deepening of the markets, etc.,” he said.

A Zerodha-Centric Observation, but Worth Noting

Importantly, Kamath added a disclaimer: “The data is based on our customers; it may or may not be true when compared to others.” Still, given Zerodha’s status as India’s largest brokerage by active client base, the trends it observes are often indicative of broader patterns in the retail investing space.

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As India’s capital markets continue to democratize, understanding where and how new investors are coming in is crucial—not just for brokerages, but also for regulators like SEBI, fintech startups, and asset managers looking to expand financial literacy and access.