Comment on Broking goes mainstream - Dec 2021

Ajit Nair commented on 03 Jan 2022, 07:26 PM

Excellent insights Nithin! Appreciate your unbiased views. You truly set high standards and that is a great quality as an entrepreneur!

With zero CAC in Zerodha’s business model and your philosophy of growing organically, i think your enterprise will be sustainable for a long period of time, given that the “word of mouth publicity” and support from your retail clients, is powerful thing to have, based on good quality products and services that your firm offers today !

Undoubtedly ‘Mind share gets market share’ , and if customers begets customer, that is a indeed a very powerful business, demonstrating a solid moat within Zerodha’s Fintech business model!

Zerodha is the ‘best-in-class FinTech platform’, and you continue to raise the bar with integrity, transparency and honesty, which augurs well for the Indian capital markets!

Kudos to you and your dynamic team for generating the growth capital from internal accruals, and not depending on, or getting attracted to the lure of VC / PE investments, which would erode your competitive strengths or competitive advantages in the long term, And also erode your “unique positioning as well” in the minds of retail investors, given the lowest level of integrity in the capital market eco-system e.g. we have witnessed state of affairs of IPOs and their performance in India, or Europe or even in US markets. Also the not-so innovative products they invent/develop, which is useless for its users, like credit cards, derivatives, considering huge costs etc.. So it gives comfort to retail investors to know that your firm’s philosophy to grow organically remains, and that is the bedrock of your current and future success!

If at all, should you need growth capital in future to grow globally( to disrupt E-Trade /TD Ameritrade etc.), Indian retail investors would be able to provide you growth capital / risk capital by investing in your best-in-class platform, and foreign VCs/PEs are not required as investors in my view.. Zerodha would then become the crown jewel of Indian FINTECH SPACE backed with nationalistic fervor, fueling more investments into Zerodha by educated retail investors, large Indian corporates treasuries, and top high quality Indian banks as well !

Indian retail investors’ participation in Equity markets would grow 10X -15X within 5-10 years as we grow our GDP from USD 2.95Trillion to USD 10 Trillion within next 15 years; this is possible assuming India’s GDP growth CAGR of 8.28%, backed with reforms, improvement in ease of doing business, growing FDIs, growth across MFG., Auto/EV, Pharma/Healthcare, and Tech. sectors backed with AI / ML backed innovation in EdTech, Fintech, AdTech, AgriTech, FoodTech among other..
Higher financial literacy among young Indians especially those entering job markets would grow the equity markets. Currently, just 3% of Indian population invest in India Equity markets compared to 55% of U.S population in U.S Equity markets…Imagine the potential impact, if we reach U.S’ retail participation level in Equity markets within 15 years or so. It looks impossible today… however not untenable, since 70% of population is under 35 years of age and they have disposable income, so this could accelerate if we educate the youth of India about how useless the investment in saving bank account is, or how useless Fixed Deposit scheme is, or how useless mutual fund returns are after factoring their fees/TER and factoring inflation!
Less than 1 % of total number of MF and PMS firms, put together in India, would be worth looking at or worth engaging, and 99.5% funds are led by unworthy team / fund managers, who should not even earn their salaries given their fund’s /PMS’s 10/15 year performance on TRI basis.

Hope Indian Government or SEBI mandates a LAW that that a third party agency must publish 10/15 year returns DATA of all approved MFs & PMS firms’ in India, in the 1st week of every year in JAN, and aggressively promote a financial literacy campaign, educating Indians that FD SAHI NAHI HAI , and MUTUAL FUND SAHI NAHI HAI, based on actual facts / report cards on actual returns on investments, and educate average Indians on Inflation and Inflation related impact on investments !
This suggestion is for the young people who are around 22-25 years of age, entering job market , and i reckon, not for senior citizens above 70 years of age, who would be more comfortable with savings/ fixed incomes / govt bond etc.

Inflation and Tax are certainties of life, so we must educate one and all, especially those needing financial literacy to grow and protect their investments.
Zerodha Varsity could play a more aggressive role to elevate Financial Education ..I think Basics of Money management should be taught in all private schools from class 6th onwards at the least… so that after graduation/post graduation , these students enter equity markets with solid knowledge and adequate financial literacy to take decisions and multiply wealth over long term!

Therefore, i truly believe potential to scale, potential to grow the market size , potential to expand the pond.. and much more advantages exist in India for the right company offering superior technology and zero-touch platforms. In the long term, Zerodha can disrupt most broking companies with its’ strategic intent’ in the future… sooner than later ! Here’s my best wishes to Nithin and the entire Team @ Zerodha in 2022 and beyond. Happy 2022!

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