Nikhil Kamath, 35, founded Zerodha, India’s best-selling retailer, with his older brother Nithin in 2010 in the southern Indian city of Bangalore.
Although it took Zerodha – the name combines “zero” and “roda”, a Sanskrit word for blockchain – a few years ago to attract the first thousands of users, today it has 4.5 million monthly users and is the country’s largest commercial platform and volume.
Kamath, who grew up in Bangalore, dropped out of school after finishing 10th grade at the age of 16 – not uncommon for someone from a middle-class family whose father worked for a state-owned bank and whose mother teaches Carnatic music.
Kamath spoke to Al Jazeera’s Megha Bahree about dropping out, setting up Zerodha, an Indian stock market, and True Beacon – his latest job in managing the wealthy.
This interview was rescheduled for clarity and length.
Megha Bahree: You come from a middle-class family where it’s not uncommon at school. How did this happen?
Nikhil Kamath: I did not want to learn. By the 10th grade, I started selling mobile phones. Surprisingly, the business was doing well. These brands were transformed into other small businesses. About 17 I joined the call center, which was my first full-time job. And I started doing business on the side. I worked in the UK [United Kingdom] shift, which was between 5pm and 1am, so it gives me time in the morning to sell. This quickly changed and improved the finances of my friends, my colleagues. This was the beginning of asset management. I stopped calling when I was about 20 years old because I had started a small business and I joined my brother Nithin to start selling cars.
MB: Did you start trading because you were notified through Nithin?
NK: Another part through him, perhaps through friends. Marketing is an independent process: you can’t depend on how someone else works, it’s independent, as what works for me doesn’t work for him. I was a broker with a company and they made me a loan for my clients. They give me 60% and save 40%, but it was an inadequate way to do things because you pay double taxes and so on. So we decided to start a reversal with the goal of getting Nithin to focus more on betting, I focused on marketing, which was our first business, and marketing will help keep the business strong and grow. As a result, we do not have women today.
MB: But why not spend any money today? You don’t need it anymore?
NK: Yes, we don’t need that. We do not advertise or advertise in the first place. Hence there is no purchase price. And that’s where founders spend their money, so our need for funding is low.
MB: What made you think you could do better?
NK: People at the time were paying about half of all financial shares – the money they spend on buying shares – like brokerage. It was not possible to remain profitable after paying a large portion of your interest on any company. So we only pay 20 rupees ($ 0.27) for each sale, which works very well. We did a lot of business because of the big differences. Growth in the early years was slow; it was natural. We got a little press because we were different. And we were young. Along the way, we invested heavily in technology and home production to make the most of it, and all of this helped Zerodha in the next growth process, which has been the last six or seven years.
MB: You say you don’t ruin the business. So was it all word in the mouth?
NK: I think it took a year and a half or two to get our first customers. Fintech to some extent is a reliable business, and people need to hear about you before investing their money with you. Because of this, it took us a long time to start growing.
MB: What led to the increase in volume with customers?
NK: Markets have been supporting stockbrokers and fintech companies across the region. And thanks to this, we have also benefited. In most cases, the way a retailer works if you are making a profit, you enter every day, you buy, you sell. But if there is a bear market and you are below 30 percent of your activity, you shut down your computer without looking at it next year. The psyche is like that. No one likes to admit a loss, but everyone wants to be active and proud when the benefits come. What has happened in the marketplace has helped everyone. Or we may be trying to make excuses for not doing something that we should have done. And the business we have found is for new people.
MB: What about your customers?
NK: Typically, customers are in their 30s, about $ 1,000 in the account, about 84% men, about 16% women.
MB: You make money from the traders during the day rather than the money sellers, so why insist on increasing your investment?
NK: In the long run, I think having the opportunity to collaborate with them, having a long history enhances collaboration on the platform. These are not people who come and go. These are the people who will live there forever.
MB: Do you think this could re-create your new asset management business, True Beacon?
NK: No, there is no similarity between the two companies. We started financial management, the question was, should we target everyone? Or if we are earning money based on what we have, should we just look at the top where most things are? That’s why True Beacon focuses so much on that.
MB: Isn’t it a crowded place?
NK: There are many, yes, but the problem is that they do not do well. They pay you two installments to set up a fund for you, which is usually the case for the fund manager, who pays you two installments a year whether you make money or not. Then there is the closing time and you cannot take your money without a fine. It’s not clear and you don’t know every day how your money is going. With True Beacon, we are trying to overcome all of these challenges. That’s why we said we won’t have any associates, we won’t go through it, you have to hunt us down. We don’t have two operating costs per year. The second one doesn’t sound like much, but if you add up for 20 years, it’s like 50% of your adult paid only money. Instead, we charge a 10 percent interest rate. It makes us more customer-friendly because if for any reason there is a bear market and for three years customers don’t make money, neither do we.
On top of that, we’ve made it very visible. There is a front row where you can go in every day to see what your money is doing. And if you want to withdraw your money, you just have to click the button again. The small things of isolation are small, but we hope that the visible increase and cost reduction will help people in the long run.
MB: Who, then, is his audience?
NK: Our audience is often billions in particular, in India and around the world, foreign nationals coming to India, top sellers who have a family office. What we are also trying to find with the show team. For example, one of India’s largest cement companies is our client. We can also contact one of the leading providers in the country who also assists us. He can speak directly if he wants anything and these things get closer quickly when you get to the top. That’s why we’re building a pool of the most popular people on the network where we manage their finances in particular but the idea is that we can ultimately support their networks and create a dedicated platform.
MB: Why do you only do this when you are ready to pay for the extra?
NK: We have to make money sometime. The idea is to act like an old trading bank, or a separate separate bank. We want to create this network and install it on a platform, a closed platform, where the guys can connect with each other under the True Beacon umbrella. It’s like a mutually beneficial group. We need to have some sort of marketing strategy to help connect at the end of the financial year.
MB: Changing gears for stockbrokers, markets are much longer. Predicting wherever they go? And how long will this take?
NK: It’s very good looking. But you know, we are all persecuted at some point in our lives or at another time, and the stock markets operate like that. In the meantime, people are buying because you know, their friends bought something and made 50% not because they like a certain business. Some are crazy. One company I am looking at sells 140 times a few P / Es – the maximum share of companies in each company. They make machine cleaners. The reason why the business has to be sold 140 times does not make sense to me. What the market doesn’t understand is that when you buy a business at 140 P / E, what you are saying is that the money you have invested today, the company should make the same money for the next 140 years to make your money. And people are making a real bet, which I think is ridiculous. I think accounting for the whole region is very crowded and people need to be careful and flexible, not just between different groups, but to buy gold, buy fixed income without risk.
MB: There has been a lot of marketing in the market for the last 1.5 years and you have seen it on your platform. How did this happen? Am I closing?
NK: If you entered the market last year, and saw the market rise, look back and you can expect this to continue. And you may even bring disaster upon yourself. I’ll give you an example. My employee is requesting a recent IPO [initial public offering] Creating a Rolex Rings company, under all members of his family, as well as 10 other people, as much as he can afford. And when I asked him why, he was like, I like the clock token. That is why I am so happy. Very dangerous.
MB: What is your advice to first-time investors?
NK: Distinguish. Stay away from power. Be flexible with your market expectations. People often lose a lot of money in the market because their expectations are not real. If you come to the market expecting to repay 40-50-60%, the stock market is probably not the best place for you. When you come to the market to make 10 to 15% a year, that’s a lot. If you can get rid of 15 percent, you build your capital twice in four and a half years and add up. Come up with a plan that can help you try this out.
MB: Do you see this kind of expulsion in the stock markets going on?
NK: I think this will continue for a while. There are many skeptics like me on the market right now. Most of the time, the markets improve when there are no doubts left and all the short sellers are like, there is no reason to short, let’s just buy and ride the waves. We’re not here yet. But we are not far from the top.