Former trader Nithin Kamath’s online brokerage firm will help millennials trade stocks for free


Stock broker monitors market fluctuations (representative image) | PTI

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Bombay: After a decade of working as a trader and broker in India, Nithin Kamath was exhausted and frustrated with a securities industry that seemed stuck in the past.

So in 2009 Kamath did something drastic. While the markets are still reeling from the global financial crisis, he has gone out on his own to start an online brokerage from a 700 square foot office in Bangalore. Back then, people called him crazy. Not anymore.

Nithin Kamath | Photo: Karen Dias | Bloomberg

Thanks to a fluid and mobile-friendly platform and very low commissions (some stock transactions are free), his brokerage, Zerodha, has become a success in a country with the largest population of millennials and from Generation Z to the world. The company’s rapid growth has not only made Kamath wealthy, it is prompting the old guard of the industry to rethink its approach and make Zerodha a case study on how financial firms can attract young clients to markets. fast growing emerging markets.

Kamath, 39, attributes Zerodha’s success to the simplicity of its Google-like platform and the company’s ability to lower prices from competitors due to its low operating costs. Zerodha doesn’t have a marketing budget, relying instead on word of mouth to attract new users, he said in an interview.

The model is not unique – Robinhood has a similar strategy in the United States – but Zerodha was among the first to deploy it in India, where rising wealth and the use of smartphones have fostered a growing market. fast for fintech startups. Zerodha now has 909,000 active industry-leading traders, about two-thirds of whom are 37 years of age or younger. More than 70 percent of the company’s transactions come from mobile devices.

“Zerodha has a superior platform,” said Madhukar Ladha, analyst at HDFC Securities Ltd. in Mumbai. “It’s very agile, fast and smart. It makes a big difference. “

Zerodha – a coat rack of zero and rodha, which means obstacles in Sanskrit – is the brokerage that Kamath wishes to have as a young investor. In his teens and early 20s, he traded during the day and worked for about $ 1 an hour in a call center at night. After a series of roles in the securities industry, including a five-year stint as a sub-broker at Reliance Commercial Finance Ltd., Kamath resigned to start Zerodha with his younger brother, Nikhil.

The siblings saw an industry ripe for change. Back then, India’s biggest brokerage houses were running technology from the early 2000s or older, and users were paying high commissions for trading platforms that were cumbersome and cluttered, according to Kamath. “We wanted to be more like Google than Yahoo,” he said.

Zerodha’s Kite App | Photo Karen Dias | Bloomberg

It took a while for Zerodha’s offering to catch on, but the growth of the company over the past few years has been striking. Its number of active users has grown more than 14-fold since 2016, surpassing at least 10 of the nation’s largest brokerage firms, including blue-chip names like ICICI Securities Ltd. and HDFC Securities Ltd., according to data compiled by the National Stock Exchange. from India.

Zerodha said he handled around 10 percent of the country’s stock transactions in the 12 months ended March, a period in which the benchmark jumped 17 percent and many Indians switched from stocks to cash. after the government ban on high-value banknotes changed saving habits.

“Their portal is very user-friendly,” said Manoj Khandelwal, 27, a marketer in North Gurgaon Mall who uses Zerodha’s mobile app to invest his personal savings. “I tried various other options, but there were always problems. “

Stock transactions are free for Zerodha users who hold their shares for more than one day. The company earns money from fees on futures, options and intraday stock transactions, which cost a maximum of 20 rupees. At ICICI Securities, investments in similar stocks of more than one day may incur a minimum charge of Rs 35, while the regular commission is Rs 25 or more for intraday orders.

Kamath at work on the office floor | Photo: Karen Dias | Bloomberg

Zerodha’s surrender strategy turns out to be lucrative. Revenue reached 4.5 billion rupees in 2018, up from 2 billion rupees a year earlier, while profits more than doubled to 2 billion rupees in the same period.

Kamath says he now sits atop a family fortune of at least Rs 5 billion, not including his stake in Zerodha. The private company has no venture capital backing, but Kamath is considering a possible IPO. If Zerodha were to order valuation multiples in line with its listed peers, it would be worth around Rs 35 billion, according to data compiled by Bloomberg. Kamath and his family own almost all of the business.

Zerodha’s continued success is far from guaranteed. Full-service Indian brokerage firms have already cut fees to stay competitive and are expected to continue to do so to defend their market share, HDFC Securities analysts wrote in a March report.

And then there is the newcomer with the deep pockets. Paytm, an Indian payments giant backed by Alibaba Group Holding Ltd., announced that it has obtained regulatory approvals to open an online brokerage company. Perhaps the biggest challenge in Zerodha’s rise is the tech-savvy startup, which changed the way millions of Indians transfer money. She plans to launch her new brokerage services before the end of March next year.

Zerodha’s office in Bangalore | Photo: Karen Dias | Bloomberg

The struggle for dominance will largely depend on the business that can attract clients without any experience in the capital markets. While India has a population of over 1.3 billion people, the estimated share that invests directly in stocks through NSE is relatively small 15 million.

Kamath is convinced that he can beat the latecomers.

“What traditional brokerage firms have not done well is introduce markets for the masses,” he said. “We are the only company to add new people to the ecosystem. “

Read also : What major Indian investors and brokers expect from the quarterly BSE results in September

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