We're keen on enhancing market eco-system

The Indian stock market is touching new heights which in turn has further built the confidence to invest in the capital market and take to intra-day trading. Nithin Kamath, co-founder and CEO, Zerodha, India's largest retail stock brokerage, tells Bizz Buzz in an exclusive interview on the ever-changing dynamics of the capital market, seed-funding trends and the scope of cryptocurrency as a financial investment in India

There were two, three enablers for people to take interest in stock investments during pandemic. Firstly, sitting at home, people had time to think about finances and secondly, the markets did well. Banks' fixed deposit rates are almost at all-time low. So, money in the bank wasn't yielding. Spending reduced drastically, which meant that people had more money in their hands

We have already been selling government securities. What they recently announced is that they will give direct access to government securities. I don't know what that really means. But on Zerodha you can buy government securities, we are plugged on top of the exchange platform. So, I don't think it makes much difference. People already have access to government bonds to buy

You co-founded the company Zerodha almost a decade ago. How the company is doing now and where do you see it in the next five years?

The company has performed quite well and today we are the largest retail broker in the country. And as for the next five years, it is tough to say, I think it would be about growing the capital market ecosystem. Until now, we have been trying to get the share of the existing market and over the last couple of years, we are trying to expand the capital market ecosystem and that is our (long term) plan for now.

Indian stock market scenario in the 90s and early 2000s was rather tumultuous and controversial. How would you evaluate the stock markets' journey in the past decade?

In reality, our stock market opened up only after 1991-94 and around the time National Stock Exchange was set-up. And the digitization in the stock market came in around 2000, with web platforms with ICICI and ILFS. With NSE, the matching became electronic. When the market was offline there was a lot of dependency on the brokers, issues such as frauds in terms of qualities of the share certificates.

Once NSE came through, everything went online so there was no worry about the quality of the (share) certificates. And then depositories, NSE CDSL started in 1996 and I think India was amongst the fastest exchanges to go from physical to DEMAT. So, until 2000, there was a certain type of market, brokers used to charge 2.5 per cent or sometimes even more as commission to execute trade because their actual physical work was required. Once online happened, for the first-time destruction happened in terms of pricing which is brokerages which went down to 0.05 percent for intra-day trades. In 2008, the traditional brokers started moving away from broking platform to real estate, advisory. 2010, is when we started. Sebi made some changes in-terms of regulations, including standardization of how much leverage a broker can offer to the customers. That's when we spotted an opportunity. The risk taken by the broker has to be uniform amongst all brokers. What helped further was NSE launching platform called NSE Now. This was a decent time to start our brokering business.

The year 2020, marred by pandemic, saw a lot of millennials taking interest in stock investments. What are your thoughts on this phenomenon?

There were two-three enablers. Firstly, sitting at home, people had time to think about finances and secondly the markets did well. So, there returns being made in the market. Usually, greed is a big enabler. Banks' fixed deposit rates are almost at all-time low. So, money in the bank wasn't yielding. Fourth is that spending reduced drastically, which meant that people had more money in their hands. So, these factors helped market not just in India but around the world. Most likely, this phenomena of interest in the financial products will continue to be there for the millennial types of audience.

Speaking of your company's performance, Zerodha recorded Rs 442.4 crore in standalone profit for the financial year ended March 31, 2020. Has this momentum continued in this financial year?

Yes, we have grown significantly in this financial year as compared to the last one.

Apart from Zerodha you also have a venture called Rain matter Capital. At what point did you think of throwing your hat in the ring and become a Seed Funder?

Around 2015-16, we realised that the capital market ecosystem is very shallow in this country. Even in this year, maybe 1.5 crore people would have invested once a year in the markets. So, what we need to do is find a way to grow that audience. In the business of money, there are two or three challenges to become a stockbroker. First one is the red tapism, all the regulations and compliance and second one is the infra required to build a trading platform which is also quite complex.

So, what we did, we said that we can offer APIs, and we invited start-ups to come and build niche user experiences. With our APIs the start-up can build different types of platforms. We realised that they also needed some capital. So, we started investing under the initiative Rain matter Capital.

What investments goals have you set in next financial year (2021-22) as a part of seed-funding venture?

I think, we have 20 investments under Rain matter Capital. And the objective is not any Return of Investment (RoI) in money. Our chase is for the impact. Are the companies growing and helping traders and investors? Whether, they're adding to the capital market ecosystem. We haven't set any target on the number of investments.

The central government has announced plans to allow retail investors in government securities. What impact does this move will have on bonds market?

We have already been selling government securities. What they recently announced that they will give direct access to government securities. I don't know what that really means. But on Zerodha, you can buy government securities, we are plugged on top of the exchange platform. So, I don't think it makes much difference. People already have access to government bonds to buy. But the yields are so low that the interest in fixed income in government securities isn't that much.

Your thoughts on the Single Securities Code and what kind of regulations can it bring in for safer Algorithmic Trading?

On Single Securities Codes, I am still not clear what that entails. We will have to wait for the announcements to come through. In terms of Algorithmic Training, in India there are already checks and balances. Sebi has done a great job of ensuring the order path nobody can interfere. So, if you place an order, it has to go through the Exchange. People can exchange the Exchange uniformly. If you see the last 10-15 years, I don't think India had any problem going bad and creating issues for the market. Every order has to go through some risk management checks. Even if the algorithm goes bad, it can't really cause too much damage.

Should India make cryptocurrencies illegal in the country?

It is a kind of a tricky topic. I don't know why the government is bothered with cryptocurrency. In India, people are always trying to gain from the system. But is banning the solution? Government can always make it tougher to go for crypto currency, I don't know if it really possible to completely ban it. People will always find a way to buy cryptocurrency. But if the question around is if cryptocurrency is the right product for investment, I think the risk of any financial assets goes up as in the liquidity is lesser. The problem is that most of the crypto is concentrated to small bunch of people and which makes it risky product. Most retail investors can't handle that kind of a risk.