Nithin Kamath: The anti-capitalist

Nithin Kamath is less pessimistic about the world today than he was last year. The founder and chief executive officer of the broking firm Zerodha also sees the contradiction in the sentiment—because since April last year, their business has been on the upswing. It’s a proper bull market, he says, and being a derivative of the market, Zerodha has reaped its benefits.

“I thought it was dead cat bounce,” he says about last year, referring to an investing term where a stock gains suddenly during a period of decline. “A lot of money was coming to India. Can some potential miracle happen? That was a doubt in my head. Even now it seems like we are in the middle of some exorcism.”

He points to the initial public offering of One97 Communications (Paytm; which saw a lacklustre trading debut) to argue that the markets are not irrational. “It’s not like every stock is bouncing up. If it’s not irrational, it’s not the peak of the bull market. Maybe there is more left…” he says. “It’s a bit confusing.”

Also Read: Soumya Rajan: Doing the math

If the stock market confuses Kamath, who has been trading for about two decades, it’s a sign of the times we live in rather than his ability to read the signs. More than a decade into its formation, Zerodha Broking Ltd is the country’s leading online broking firm, ascribing itself a valuation of $2 billion (around ₹14,800 crore) based on its annual ESOP (employee stock ownership plan) buyback. With over seven-and-a-half-million retail clients, it handles about 15% of the country’s daily equity transaction volume.

“I don’t think anyone should get into the business of timing the market—it’s almost impossible,” he says by way of advice. “Everyone should have a long-term strategy with exposure to equity and debt. Just stick to it. If you don’t understand the industry, just buy an index fund and keep quiet.”

It’s anything but quiet at the Taj West End in Bengaluru where Kamath is being awarded for his entrepreneurial work. He has timed it well: Dressed in a dark jacket over a white shirt, he reaches the event at exactly the right moment, after making time for our conversation and a quick “healthy” omelette that he tucks into between insights into his life.

The boyish-looking 42-year-old measures his words but is candid. He has some of the characteristics typical to those who grew up in the city in the 1990s-early 2000s—the choice of vocabulary and accent, easy-going demeanour, interest in rock music, basketball and technology.

His banker father would be transferred every few years, before the family settled in Bengaluru when Kamath was in class IX. Though he started studying engineering—as was the norm at the time—at the Bangalore Institute of Technology, college became a bit of a “distraction”—he had other interests, like the stock market.

Kamath started trading markets early, while still a teenager, working at a call centre during college so he could trade during the day. It was in 2005 that he was first asked to manage someone else’s money. He gained more customers gradually and Zerodha was set up in 2010 with money he had saved from trading; his younger brother Nikhil joined later.

It was a bold move, starting a brokerage during a global financial crisis, with no particular experience. There was no venture capital funding, making theirs a startup that started from zero. Even today, the company remains privately held—Nikhil is the co-founder and chief financial officer, while Kailash Nadh is the chief technology officer who has played a key role in the firm’s growth. Nithin’s wife, Seema Patil, is Zerodha’s chief quality officer.

Since the pandemic and lockdowns, in particular, Zerodha has attracted a number of new investors, young professionals, who were earlier not confident about investing in the market. Almost 75% of their subscribers are entering the market for the first time, investing sums as little as ₹5,000. Their customer base has more than doubled since November 2020, from 3.5 million to 7.5 million—partly owing to the fact perhaps that many people were working from home and did not have the usual avenues to spend.

Ultimately though, says Kamath, their product is the biggest propeller of their growth. “Pricing stopped being a factor long ago and traders and investors stick around for the best platforms, tools and insights. To give you a simple example, we are probably among a handful of brokers to build a reporting and back-office platform from scratch to remove external dependencies. Because of this, the reports we offer, like tax P&L, holdings reports, and turnover reports, are the best in the industry and are tax-ready, saving users countless hours when filing their taxes,” he adds. Today, Zerodha has 1,024 employees.

“The best way to learn about the markets is by investing,” he says. “One positive of this is that even if markets fell, this bull run would have educated a lot of people about the stock market and investing.”

The only thing he is unable to understand, Kamath admits, is cryptocurrency. “I understand it as an alternate currency but why should the price go up? If you want currency to be non-volatile, what is it then? Just the fact that there will be limited number of coins increases the value of the coin without any real utility? I don’t get those concepts.”

His concern is what he calls the mis-selling of the product, which may prompt people to buy crypto coins without understanding the risk profile. “One day, the party will end. Every financial product has an up and down side. Be it ads or large guys who are blatantly making it seem like you can never lose money by buying crypto—someone has to do something about it. Right now, crypto works in this grey area where there is no regulator. They can essentially say anything they want.”

He has been quite vocal in his opinions, be it about crypto or otherwise, collecting more than 300,000 followers on his Twitter page. He has used the platform to talk about the company’s valuation, to explain stories that declared his annual salary to be over ₹100 crore (a resolution passed by the company but not the actual salary figure) and build an audience. He also has a blog where he writes about finance and subjects that matter to him.

In what sounds like an oxymoron for a trader, Kamath claims he doesn’t get excited by money. “We have requested not to include this unicorn (startups valued at $1 billion or more) angle but almost every (news) article starts like that and it does nothing to our business. Our billions are on paper, notional money. Not like I have it in the bank. My father asks me: Where is all this money? Where do you keep it? Bank or fixed deposit?” he says, laughing.

One of the factors that helped him dissociate from the lure of wealth is the “monk-like” Nadh, who helped him be more conscious of his carbon footprint, almost become “an anti-capitalist”. Kamath says, for instance, that he has been living in the same house, using the same car and wearing the same clothes for years. “Incrementally, more money is not increasing my quality of life. I think the big problem is concentration of wealth,” he says.

It’s the reason he set up Rainmatter Foundation in 2020 to focus on the creation of livelihoods and work to check the pace and impact of climate change. In India, he says, the two issues are linked.

The foundation is committed to giving $100 million over the next three years to organisations that work in the field. One of their investments is in Organic Mandya, which tries to get people with farmland to return from their menial city jobs, and a 100-acre tree project with SwaYYam, to create sustainable living communities near Bandipur in Karnataka.

“One thing we love is freedom as a business,” says Kamath, explaining why they have not gone down the IPO route. The year 2021 was a bountiful year, he adds; they even got blank cheques, for investing in the firm, as a show of faith. “I have realised that when you say no to money, the interest to invest increases significantly. People want to give money to people who don’t need it. Tomorrow, if this business is in trouble and I want to raise money, I may not be able to.

“A lot of my friends say you build blind sides by not having outsiders. You gain from their experience. If you take money from 10 smart guys, they will give their time to you. Maybe we are missing on that…”

The freedom he talks about comes from not chasing revenue numbers. He believes every company sets such steep targets that employees take short cuts owing to the pressure to sell. “If you offer free omelettes to people in Norway, not many may walk in. But say it in India, you will have a lakh turn up. Demographics gives us that ability to create users. That’s a big problem plaguing the industry. Therefore, there is the need to audit users.

“Right now is a good time to raise money—we will get peak valuation,” he admits. “We might have to raise money in the future and regret not having done it now. But I made peace with it…. One of the reasons we made peace is because we don’t have any lending ambitions. Today’s world, you need money for two reasons: spending on marketing and getting customers to build a portfolio. We don’t have either of these (needs).”

Instead, he is happy playing the guitar with his son Kiaan, keeping up with his wife’s quest for greater fitness, shooting the hoop or playing table tennis with Nikhil. “I may not look fit—like six-pack and all—but that’s because of food, isn’t it? I love my sweets but I have always been fit,” says the UFC (Ultimate Fighting Championship) fan.

Even as the calls start coming in for him to make his way to the awards function, Kamath adds that he doesn’t think Zerodha is done building its product. One piece of their business will be to help people do better with their money; another, an advisory. “We don’t need new customers if existing customers are going to survive.”

Arun Janardhan is a Mumbai-based journalist who covers sports, business leaders and lifestyle.

Also Read: Naveen Munjal: The electric effect