Nithin Kamath says raging bull market led to 5X growth in revenue

Zerodha CEO Nithin Kamath said that the company's customers, revenue and profits have seen a 5X growth since March 2022 primarily due to the raging bull market in India. In his blog, Kamath said that the brokerage firms have tremendously gained with developments like eKYC, online digital signatures, and UPI, which have enabled mass participation.  

“One is the phenomenal bull market in India. Developments such as eKYC, online digital signatures, and UPI turned the largely offline industry into a truly online, paperless one, enabling mass participation. And for us specifically, adoption via word-of-mouth from our customers,” he wrote on his blog. 

Talking about the bull and bear trends in the market, Kamath said: “At or near the top of every bull market, brokerage firms seem like businesses that can do well and generate cash forever. But this isn’t true. Our business performance is highly correlated to the markets (high beta) and volatility. The financials turn around as soon as the bull market plateaus or markets trend down.” 

He added: “We think we have temporarily hit a plateau regarding the target market, customers who have sufficient savings to invest in the markets, and an ability to generate revenue for the brokerage firm. The business will also most likely get impacted due to the changing regulatory landscape, where, among many things, the working capital requirements are going up quickly.” 

Elaborating on Zerodha’s business model, Kamath said that they invest in bank FDs, government bonds, and have a long-term stock portfolio with their own funds. "We neither leverage (borrow to trade more) nor trade any leveraged products like F&O, which can lose more money than the capital at stake. This is to ensure there is no risk due to our treasury operations to the business. Our portfolio currently has exposure of 33 per cent to bank FDs, 32 per cent to stocks, 13 per cent to Government Securities, 9 per cent to tax-free bonds, and 13 per cent to Gold bonds," he said.   

He added that Zerodha’s higher gross margins are a result of several conscious decisions. Like Zerodha doesn’t spend money on marketing or advertising. “We have a lean tech infrastructure built on top of high-quality Free and open-source software (FOSS) that they adopt and maintain in-house. We avoid external SaaS/vendor dependencies and lock-ins and self-host systems as much as possible," Kamath said.