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technology | IST

Zerodha founder Nithin Kamath on how he built the company and disrupted the stock market brokerage business in India

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For Nithin Kamath, CEO of Zerodha, India’s largest stockbroker by number of clients, wealth means being satisfied with one’s life. In an interview with CNBC-TV18, Kamath, a pioneer of the discount brokerage model in the country, said making money is one thing, but keeping it, remaining sane and doing the right things with money demand a different skill set. 

For Nithin Kamath, CEO of Zerodha, India’s largest stockbroker by number of clients, wealth means being satisfied with one’s life.
In an interview with CNBC-TV18, Kamath, a pioneer of the discount brokerage model in the country, said making money is one thing, but keeping it, remaining sane and doing the right things with money demand a different skill set.
The 39-year-old is the right person to talk about creating and maintaining wealth. Founded in 2010, Zerodha now contributes to almost 15 percent of the Indian retail trading volume and is the country’s largest retail stockbroker with a customer base of more than 1.5 million. Kamath’s net worth has been estimated to be around Rs 6,600 crore.
“For me, wealth before all of this happened was a bigger car, better watch and all of that, but now it is about being content and you hit that point where you are satisfied in life. Being in a nice house is part of it. I am not talking about the flashy house, etc. It should be a place where you can sit down quietly at the end of the day after a hard day’s work,” he says.
The young, self-made billionaire thinks being able to be grounded after doing whatever you have done in life is extremely tough and considers Wipro’s Azim Premji and Infosys’ NR Narayana Murthy as perfect role models.
“I was a really bad student right through my school and college, and so yes, now that it has all turned okay, my parents are quite happy about it. I think it is about finding that one thing that you love and try to build your career or your business around it. So stock markets is what I love and so I was lucky enough to build a business around it and so eventually luck hit some point of time and it all turned okay. So it is about finding something that you love doing and doing it all the time,” he noted.
Kailash Nadh, Chief Technical Officer of Zerodha, spoke about the complexity of the trading mechanism and what the company is doing to avoid technical glitch. “Just like banking, stockbroking also is complex in India. There are many levels and layers through which an order passes,” he pointed out.
Edited excerpts from the interview:
You have talked at several points about how in the early years when you were an active trader, you have lost money, you went burst. You used the word burst to describe what happened to you. So when you have had that kind of relationship with money and wealth, what does wealth mean to you and then when you see what is your hard-earned work and labour can make for you, how do you see it?
Kamath: For me, wealth before all of this happened was a bigger car, better watch and all of that but now it is about being content and you hit that point where you are satisfied in life. Being in a nice house is part of it. I am not talking about the flashy house etc. It should be a place where you can sit down quietly at the end of the day after a hard day’s work.
I heard you say somewhere that Azim Premji whose company Wipro is also based in Bangalore is a role model. Why is that?
Kamath: It is just being able to be grounded after doing whatever you have done in life, it is extremely tough.
Is it tough to stay grounded when you taste success and when you get attention, media attention?
Kamath: Absolutely, I think making money is one thing, but keeping it and remaining sane and doing the right things with money... it is just another skill set to have and not just Azim Premji, even say NR Narayana Murthy, they are perfect role models for that. It is kind of not loose plot just because you have made some money.
And it is easy to lose the plot?
Kamath: Extremely easy.
There is some very serious equipment here isn’t it?
Kamath:  A lot of this is just midlife crisis and all the things that I wanted to - I thought money can buy and I have tried to buy it, but then I have realised that all of this is just very transient. I think you have it and then you have more things you want in life. So yes, I think I am generally content in life, but I think a fit body is a state of fit mind.
Your parents must be very proud of you now?
Kamath: Yes, I mean I had set very low benchmarks things.
So you have outdone their expectations, is that what you are saying?
Kamath: I was a really bad student right through my school and college and so yes and now that it has all turned okay, so they are quite happy about it. I think it is about finding that one thing that you love and try to build your career or your business around it. So the stock market is what I love you know and so I was lucky enough to kind of build a business around it and so eventually luck hit some point of time and it all turned okay. So it is about finding something that you love doing and doing it all the time.
I was reading some of these share certificates, what is written on them and you think of the way money, people's money has funded big ideas isn’t? When you think of the stock market and its role in the context of the Indian economy how do you think it has performed?
Kamath: Companies like Infosys and Wipro, I think most of South Bengaluru is powered by Infosys shares because Infosys started in Jayanagar and people during the approval time they went around trying to sell the stock. So it is just crazy how much wealth companies like that have created. I think in the last 10 to 15 years you wouldn't get a blockbuster IPO. What is happening now is by the time the public actually gets hands on a stock, it is probably already juiced out. So if you were to ask me what would be the longer-term vision like or an end goal of all of this I think for us it is about finding a way for Indian companies to raise money from Indian investors.
Today most Indians end up keeping money in real estate, gold, fixed deposits. If you look around all the superpowers of the world you had people of the country power their companies and not keeping money in some asset which is not going to yield anyone anything. So I think we want to kind of build that environment where we are able to somehow be the catalyst to get more people to invest in the markets and hence power more companies to raise local money versus raising just a lot of foreign capital.
Is there a philosophical outlook that you have when you deal with midlife?
Kamath: I am generally an easy-going guy. Before I do anything I know my maximum loss on it. Once I have made peace with it I go ahead, if I can't make peace with the maximum loss I don't. That has helped me personally when I used to trade as well because every time you trade, every trade you could potentially lose as much, so as long as you made peace with that loss and it is the same way with relationships today, in office as well so when I am looking at someone I am like how much can this guy cause me maximum damage.
So when you look at someone you say what is the most harm he or she could do me?
Kamath: I mean not most harm personally, but for the business - as in the business kind of scenario.  So if you are partnering with someone I am like what is the maximum damage the person, the business can do us and if I can make peace with that loss I say okay let us do it because now I am already wired for the worse outcome.
We are meeting at a time when the Indian economy is slowing down and that has become a cause of concern. How do you at Zerodha from your perspective and also with your understanding of the stock markets and how it is reacting to economic information, how are you seeing where India is that at this point of time?
Kamath: We are in a spot for sure and I hope some of the measures that have been taken right now will help us kind of get through this. I think the impact for us as a business is two folds because if markets don't do well your new customer addition drops, existing customers stop transacting as much, so as a business what we are trying to do to kind of circumvent this of issue is to have a secondary revenue model, we are getting into selling fixed income instruments saying maybe there is this big class of people for whom stocks are not the right product, maybe fixed income is a right way to kind of introduce them to the capital markets that is what we are trying to do as a business.
How come you and Zerodha are not part of the VC-funded, angel investor, series A, B, C, and all that jargon that surrounds this business. How come you are not part of that?
Kamath: Before Zerodha started I did go meet investors.
So no one at that time took a bet on you, is that what you are saying?
Kamath: No, it is not that. I do not think I would have bet on myself if I was a VC, in the sense there was no pedigree education, there was nothing. However, once we started making money, I did not really want to take money and spend on marketing and advertisement. If you are not really spending on marketing and advertisement, you do not really need too much money in today’s world to build a business.
I think I have met almost every serious investor in the world, every VC, every PE, and a lot of them have asked us to take some secondary which is take some money off the table if you do not need it for the business, but the thing here, what I have realised is that as a business our edge is how nimble we are because in this business either you have to have deep pockets to win or you need to have nimbleness to win.
And you are picking nimbleness over deep pockets?
Kamath: Yes, because everyone else has deep pockets. So, I think nimbleness in conjunction with the experience we have of running this business for 10 years, plus having been in this industry for 20 years together is a good potent package.
But if you had an investor, how would life change for you and how does it change for startups? How is that culturally and even in terms of what it entails in terms of operations, how is that different because you have incubated other startups in the fintech space as they say?
Kamath: The biggest tipping point for us in this whole journey was back in December 2015 when we went zero brokerage for equity investing. We were charging Rs 20 per trade and me, Kailash and the person who heads our PR, we were on our way to Cochin for a press conference and the flight got delayed. We were sitting at the airport and we were like most of our customers come to us because they want to trade F&O or trade actively in the markets, investor crowd does not really come to us, and so we need to change the branding for the business.
So, I said how about just going zero on equity investing. We anyways did not make much money out of it. It was about 6 or 7 in the evening and next day morning we were zero brokerage and we announced, and then there was all this press coverage. We had opened 70,000 accounts till 2015 December, the next year we had 700,000 accounts. So, that small decision turned around this journey for us so much.
How would it have happened if there were people you had to take on-board?
Kamath: I would have to do a board meeting, multiple investors and I would have to get all of them buy in the idea that going zero brokerage for equity investing is going to get us new business, which is tough.
So basically we only have to take your word for it if you say you are a unicorn?
Kamath: I have no ambitions to be a unicorn.
But when you read about the startup space, doesn’t that seem to be the driving goal, to be valued at a billion dollars and more?
Kamath: Yes, it is kind of. People think differently.
Is that the prevailing ambition, would you agree?
Kamath: It is. I think the tax incentives are also kind of wired to think like that because if you want to make a profitable company and take money out of the profitable company, you have to dividend out, etc. you are paying over 50 percent in taxes, you build a valuable company and sell it to someone you are paying long term or short term capital gains with indexation benefit and all of that. So, I think the tax structure in the country is kind of incentivising people to take the route of building valuation versus profitability.
Who do you trust most with these decisions besides yourself?
Kamath: In our office, Nikhil, my younger brother. I am an eternal optimist and he is quite pessimistic generally about most things. So, he is the one who slows all of my aggression and my decision making is tempered by his outlook. Then Kailash who heads our technology section, he is extremely rational. So, I think it is a good combination.
You want us to meet Kailash, he is someone who is pivotal to Zerodha’s success.
Kamath: Today we are a tech business.
And it did not start out as a tech business, that was not your unique offering, isn’t it?
Kamath: Absolutely not. The only tech I had done till 2010 was Excel. So, there was no tech I had done or anyone in the business had done until Kailash joined us. I think today we are called fintech because of him and the team he has built right now.
Tell us a little bit about how you all met and what this story is about?
Kamath: So until Kailash happened, we were a traditional broking firm, using vendor-based products and with a decent business model. So the journey of us going from broking to being a technology company happened once he came on board.
So Kailash made you cool?
Kamath: More than that. How we actually caught up, he was part of a startup which was trying to build like a platform for investors and traders and that is how I got introduced to him and then that startup did not fly and then I somehow convinced him that there is a mother of all bull run waiting to happen in the market - you should come and build products with us.
Nadh: I wasn’t convinced by that, I have my own reasons but it was by complete coincidence that we met. Until we started doing our in-house technology, it was technology-enabled stock broking so technology was just a means, a vehicle for doing stock broking - investments and trading. But we kind of turned that around, so we would like to see ourselves as a technology company that offers stockbroking.
That was a complete change in approach?
Nadh: Complete change in the way as brokers we approach the problem and thankfully our users also.
Kamath: Right from the way platforms are built, if you use our trading platform compare it with one of our competitors you will see the difference. Off late a lot of them are kind of taking the same style and trying to build on their own but generally, we were the ones who kind of differentiated in terms of how products are built and trading platforms are built in.
I must bring up what happened in the end of August because you started trending on twitter, and the interesting thing is while you have explained how social media has been quite critical in Zerodha’s journey and its success it also on days like August 29 you also feel the full fury of people’s ability to talk and articulate themselves on twitter. So what happened, I know you have written a long blog post, but since he is the Chief Technology Officer what is this technical snag that happened in layman’s term?  
Nadh: Firstly, it is extremely unfortunate and nobody wants to see stuff like that happen, not our users, not us. But it is not that simple, people think that we haven’t done enough, we haven’t set up back up, we haven’t invested enough in technology but that is not the case. This is quite a complex ecosystem, just like banking is complex in India, stockbroking also is. There are many levels and layers through which when you place an order, an order pass through many levels and layers; so in front you have your trading application that the user uses which could have been built by a broker or could have been built by somebody else.
Then there is an order management system which again for 90 percent plus of the brokers it is all from a vendor, popular exchange and vendors and then you have got leased lines that you have procured from various ISPs, then that you finally hit the exchange. In this sequence, in this chain, there are many things that can go wrong and for us unfortunately, things have failed at our order management level multiple times.
Is that where now there will be a lot of focus to try and fix it, or how does it work?
Nadh: There has always been focus there, so this is not our technology, this is something we have leased, we have leased it from Refinitiv, formerly Thomson Reuters, they are one of the biggest and best in the world and in India. That is managed by them but we have been working very closely with them over the last 4-5 years and improving things and they have done tonnes of things which is why we have been able to scale their systems to our scale. We continue to work with them so this last incident was - it was a freak incident, completely a function of the market so it was just unexpected.
Do you want to do a little flashback and tell me what was it like that day in the morning - those 30 minutes, what was it like over here?
Kamath: I don’t know how I stopped myself from jumping off buildings on such days. I have generally been the face for the business and people realise something is off, they come after me first. That day the issue was for 30-35 minutes, the day after that, two of the largest brokers in India were down for 3-4 hours. The good thing about the business is I don’t think we ever lost our cool, in a sense we are not fighting, we are not shouting, we have had really horrible places we have been at, so generally we have been quite cool about all this.
When something like that happens do you see customers wanting to exit Zerodha, is that real concern?
Nadh: It is a genuine concern, people are right to be furious, because their money is on the line and I am sure people leave, but the best we can do is keep improving products and building new products. We just hope that people get over this episode and they like stuff that we built for them.
You have got something new coming up? The RBI gave you the NBFC clearance and so you are going to be able to lend to people?
Kamath: So people have securities lying with us so they can borrow money against that, do whatever they want because it is a collateralised kind of a loan so you get it at much lower interest rates and personal loans and etc. It is not really a popular thing in India. This loan against securities is very HNI kind of a product, so we are trying to take it to masses now. Trying to tell them that if you have a credit card outstanding at 30 percent plus and you have some securities why not just borrow some clear this off, because I think once interest rates go about 20-22 percent repaying it becomes almost impossible. Until now we have been trying to offer a platform to cater to people with intent to invest or intent to learn but now we want to also help people take their trading decisions; that is probably the next part of the journey.