India’s youngest billionaire dropped out of school just 20 years ago, age 14. Not that he regrets this decision. School failed to enchant him, whereas the opportunity to earn some cash did.
Within the relatively brief period that’s followed he’s gone from selling mobiles on the streets of Bangalore, earning a pittance, until his mum found out and flushed his phones down the toilet, to becoming a billionaire broker and the youngest person on Forbes Rich list for India.
Key Indian player
Nikhil Kamath is the CEO of Zerodha, India’s largest trading brokerage, which accounts for 15% of all retail trading volumes in the country. He founded the business with older brother Nithin back in 2010.
Nikhil said: “Joining forces made sense. We were traders before becoming brokers at around 22 or 23, and it seemed logical to get a brokerage licence so we were our own bosses rather than trading and paying others.
“Yes, working for a firm earns you a wage, but it has its ups and downs and we felt it was right to set up our own brokerage, rather than pay others fees for the privilege of earning them a pretty penny. Moving from trading to broking is a logical step, at least here in India.”
Zerodha hits the big time
A decade on and the Zerodha has hit the stratosphere, albeit in unfortunate circumstances of which the CEO is acutely aware. The firm saw a spike in interest during the pandemic, with the number of registered users doubling to more than five million and achieving an annual pre-tax profit for the financial year 2020-2021 of around INR1,000 crore ($137m). Its daily turnover reaches $10bn.
The company was set up to encourage access to investing for all, which is a challenge in India, given the lack of IT infrastructure and an innate wariness of the unfamiliar. The comopany name is the Sanskrit for 'barriers'.
Yet the formation of a broking platform with a flat fee of INR20 (19p) for F&O trading that was aimed at serious stakeholders proved an almost instant hit. It hints at the steel and conviction of the brothers that they did not seek any external investors, but stuck to their guns and are now at the helm of the largest brokers in India.
Predictions are not reliable
Despite being a leading investment entrepreneur Nikhil is no equity evangelist, he has always shied away from overstating both the potential gains accrued through investments.
For a keen reader this makes sense. He has been vocal about the dangers of making stock predictions, a case of great expectations not being the best policy. He said: “Well, it is very hard, probably impossible, to accurately predict the future, especially in the stock markets.
“What we tell our clientele is these are the issues we factor in, the systems we follow. When conditions change, we respond according to our parameters and alter our course to market conditions. What we don’t do is say the market will be bullish in the next quarter, because we are not mind readers of fortune tellers.”
Indian government could have done better
India has suffered the ravages of coronavirus more than many other countries. This plays on Nikhil’s mind, as he explains: “In hindsight the government could have done more. But the magnitude of the problem cannot be overemphasised. Just consider the population of India, we need ten times more oxygen than we would normally consume. Consider that.
The almost overwhelming attraction of some stock, especially the Hollywood or Bollywood memes is dangerous, according to Nikhil. “I’m fairly critical of so-called influencers, by virtue of their accomplishments they are listened to. I feel that because they have a voice, a following, they should accept a certain amount of responsibility.
“There are people, many people, who have lost money on GameStop and Bitcoin, and this is a serious problem, because it is not affecting the wealthy, but the small guy who is just trying to get into trading.
"So, I’m a bit critical of these larger-than-life social influencers who use their social media platforms to spout their view which, if they have a large enough following, can move whole asset classes. It is irresponsible."
Cryptocurrencies also get a tongue-lashing. Nikhil said: “I’m not a fan. I think cryptocurrencies could catch people out. I think a lot of naive investors have bought into crypto in the last year or so, and a big chunk of them are not experienced traders and I don’t know how they will react if things go south."
For stay-at-home Indian investors the Zerodha model offered an opportunity. Nikhil said: “Indians trust the banking environment, which is stable and traditionally has delivered steady returns, of 7% to 9% returns.
“But of late returns on deposit accounts have dropped to around 4%, which does not beat inflation in India, meaning people are searching for a reliable asset class, and turning to equity for no other reason than to ward off inflation."
India is a long way from the West. According to the World Bank, just 20% of Indians are online as opposed to 93% of the UK population. While this proportion of Indians doubtless accounts for many wealthier, and therefore, target customer that’s a statistic Nikhil is keen to see change for the better.
He told us: “We have an equity market that attracts around 2% of the population, which is very low. The US has a market of over 50%, so we have some way to go. That being said, the internet penetration is going up exponentially in smaller towns, so we are getting there. So, the gap will be bridged within the next two to three decades.”
Regulation is required
Nikhil has been vocal in his criticism of the Indian government, which he considers a meddler in financial affairs. He would prefer the current regulators to continue to hold the whip hand. This, he is assured, will bolster potential investors’ confidence, but acknowledges it’s a tough job, requiring a deft touch and an iron fist.
He said: “I think regulation is required, but excessive regulation is bad. But regulation is a good thing, especially when it comes to money and the financial system. Without regulation there would be a lot more scope for malpractice of all kinds.
With Zerodha flying it made sense for the Kamath brothers to spread their wings, which they did in 2019 with the launch of True Beacon, an Alternative Investment Fund in Gujaret’s economic hub GIFT city. Nikhil is CEO of the enterprise, which is aimed at high wealth young Indian investors, typically aged around 30 to 33.
According to the company, True Beacon is “built on client alignment through a zero standing-fee model and a conservative investment approach, together with liquidity and tech-enabled transparency.” In its first year those who invested the minimum $2m realised 26.6% returns.
It is something Nikhil is passionate about, as he says: “India has a large, young population. We are fairly self-sufficient, we don’t have to rely on the outside world. Things are tricky right now, with the coronavirus, but we’ll come though it and continue to grow.”