The Intelligent Investor

IN MANY WAYS, THE TRAJECTORY OF NIKHIL KAMATH’S LIFE IS A direct echo of the Indian growth story. It was just as the new millennium turned that Kamath, around 15 or 16 and still in school, would stand on a street in Bengaluru selling mobile phones. It wasn’t necessity that drove it. His father was a banker and they were regular middle-class folks. The telecom revolution however was upon the country and his ambitions at that point, though narrow and limited by age, could still sense an opportunity. He calls himself precocious in terms of wanting financial independence and in that vein soon decided that formal education wasn’t needed. Bengaluru was already in the throes of yet another revolution, that of information technology (IT), and a layer had been added to it in the form of outsourcing—India was becoming the call centre capital of the world. Kamath got into one of them. He was only 17 then, earning a lot and having a lot of fun. When he joined the company had 400 people. When he quit three years later, it had 4,000. In the midst of working there he tipped into another revolution taking off, that of the financial markets. “I had a bunch of colleagues at the call centre who were trading. My brother was also into trading. So my ecosystem was surrounded by a lot of people who had equity market exposure,” he says. He would accumulate whatever was left of his salary until it reached ₹30,000 or ₹40,000 and then make trades on futures or options contracts. The account would go to ₹1 or 2 lakh, and occasionally some incident or event would occur and fall to zero. Sustained trading success is however a function of probability, and he was so good at it that soon his colleagues and supervisors were giving him their money to trade. He had found his calling young in life and it stayed.

When he was 20, he left the call centre and got into full-time trading, managing money for clients, starting an entity called Kamath Associates, a partnership between him and his brother Nithin, where they pooled in their clients. Then they both jumped onto yet another phenomenon that the Indian growth story was now heralding, the startup boom. They were in Bengaluru which was at the very centre of it. It would lead to them founding Zerodha which would change the nature of stock broking in India through the concept of zero brokerage, where buying and selling shares was completely free. It enticed a generation of investors to the platform that would, in turn, make its money from brokerage fees on trading of derivatives or intra-day buying and selling. It became a river of gold. For decades, the late legendary investor Rakesh Jhunjhunwala had been saying that once the Indian masses began to participate in the markets seriously, the nature of the sector would change. That began to happen and Zerodha was on top of it. Last year, it made a profit after tax of ₹2,900 crore. It is still privately held with Kamath owning just under 30 per cent. Forbes has a real-time networth of billionaires and it puts him at $3.1 billion.

WE ARE MEETING at Kamath’s flat in Bandra.He spends a week in Mumbai and the rest of the month in Bengaluru. He is 37 years old and gym-fit, the result of a regimen of strength training, playing paddle, and intermittent fasting. When he speaks, it is a low steady tone, somewhat muffled by the after-effects of a tooth surgery. Dressed in a round-neck black T-shirt, there is a sense of casualness, a departure from your typical corporate personality. Something he embarked on last year is also what you don’t see Indian billionaires do—a podcast. Called WTF is, the podcast has him sitting with a medley of guests, listening mostly as they analyse an idea or a sector. It is an intriguing format because they can go on for hours. Just his YouTube channel, where the podcast is aired, has 8.5 lakh subscribers. A recent one he did with players in the alcohol industry got over five lakh views. Before that, there was one on gaming. That followed one on what makes successful entrepreneurs and the flaws that come with it. The epi­sode went on for more than four hours.

The podcast is part of a new direction that Kamath has been taking, a metamorphosis from trader to investor. “It had been happening slowly in the last four or five years. I feel myself getting older and slower. We do the same thing for like 20 years, you start to get less competitive, less efficient. You’re not able to take risks like you were once able to. Now I’m very little a trader and mostly an investor. The one big arbitrage between trading and investing in India is if you’re a trader and you make money, you pay 40 per cent tax. If you’re an investor and you make money, you pay 10 per cent tax. That arbitrage is so wide that making some crazy 50 per cent trading is equal to making 30 per cent investing. So I’d much rather focus my time on investing by virtue of that arbitrage.”

If his success so far had been a correspondence to India’s growth, he was now banking on how this story was going to pan out. He has investments across a range of sectors and companies looking for a slice of this future, which he guides as a part owner. In the podcast, he exchanges ideas with peers that other young Indian entrepreneurs can learn from and from which he himself gets ideas for investments.

WTF is began because he was already having those conversations. “I would have very interesting people come in for dinner. We would have amazing conversations and debates. And I constantly keep asking questions, even when I run into my friends. So a lot of people said these conversations are so interesting, you should have a camera in the room. It started like that. It’s very unfiltered; not really edited conversations, around things I am curious about. Also, often coinciding with sectors I want to invest in and I’m doing research on anyway. I really enjoy it. I know it’s for the audience and all that. But for me, it’s also like going to college one day a month.”

The first episode he had was on the Metaverse, that virtual world Meta and its founder Mark Zuckerberg were investing heavily to create. The panellists were Tanmay Bhat, popular stand-up comedian and influencer; Aprameya Radhakrishna, founder of ventures like Taxi4Sure and Koo; and Umang Bedi, a former CEO of Meta India. An exchange indicates the insights the show throws up. Kamath asked Bhat how a downturn in the Bitcoin and crypto market affected influencers because there was a lot of cross-sponsorship involved. Bhat, explaining the fallout, spoke of how influencers also began manipulating and trading crypto and argued that they would be better off supporting developer initiatives: “That is just the smarter route to go. It is also the more pro­ductive route and you find yourself in a new community that will ap­preciate you because very few mainstream influencers actually talk to developers.” It is not something that you anticipate because the world largely looks at Bhat as a performer.

Kamath says, “We shoot for like eight hours, 10 hours, 12 hours. They’re good fun. And it’s not like a means to an end. We’re not trying to really arrive at an outcome, but trying to have great high-quality conversations to solve for our curiosity and inquisitiveness. It happens to be recorded and putout there, but it’s coming from a very innate place where I want to learn about people and industries that they might be in.” He chose Metaverse as the subject for his first epi­sode only because he was curious about it. On the other hand, one of the latest episodes was an interview with Microsoft founder Bill Gates where the discussion ranged from philanthropy to AI and it began with Kamath telling Gates that he wants their discussion to address a 20-year-old starting out on his or her entrepreneurial journey.

IN JANUARY, KAMATH was invited to speak at the Vibrant Gujarat Summit and he spoke of how the opportunities the country threw to a 17-year-old him without education or capital was a reflection of India’s evolution, and opportuni­ties for entrepreneurs had only increased since then. He ended it with a note to foreign investors saying that India is now the cool­est party in town and if they arrive too late they may not get in. As an investor, his faith in that story is reflected in the companies he is putting his money in. There is, for instance, Ather Energy, which makes electric scooters. He thought that their product was great and even though he found the marketing and sales wanting, it was still worth backing. “They’re the original electric scooter company in India. They’ve been around for the longest. More than anything, I felt that if the product is differentiated in the manner that Ather is, the rest of the stuff can be fixed. I’ll give you an analogy. Ather is like the iPhone of EVs in India. It’s great that a product like that has come out of India. And I feel it has a lot of potential to somehow stop the foreign incumbents which are taking over the auto space in India, and for a homegrown, indigenous brand to do well both here and outside.”

Another investment of his, Nazara, a gaming company, addresses Indian youth. “I think the kids of tomorrow will need a feedback loop when they consume content. If I were to define a game as content, the fact that I’m interacting with content versus a movie or sport where I just watch, it has a sense of that,” he says.

One pedestal of Kamath’s approach is to pick marquee Indian brands, where he thinks quality is better than foreign brands and then supporting and pushing them to do well. Secondly, there is the anticipation of a huge wave of Indians buying Indian products as a first choice and a generation of entrepreneurs here who will tap into this phenomenon. “The India story is going to be huge in the next decade. I feel this a lot when I talk to foreign investors who are often critical about their own geography, but are all talking about how to get exposure to India. We’ve had a bunch of things that have really worked for us. And this sounds like I’m selling patriotism, but I feel that even if I were not an Indian, I would look at India as the most appealing market in the world,” he says.

The WTF is podcast also led to the idea of a mechanism for young Indian entrepreneurs to fulfil their vision. In April this year, a WTFund was launched, targeting those below the age of 25 with interesting ideas and supporting them with an initial grant of ₹20 lakh. The money would be offered without taking their equity, thus leaving them full owners of their startup. But that would only be one part of it. They would also get mentors and an eco­system to turn it into a great business. As many as 1,600 applications were received from which 128 were shortlisted. The ideas received included, as per his team, “a 19-year-old trying to create memory storage in DNA, a 23-year-old trying to iterate a new form of protein, and a 24-year-old trying to bring animal testing to India.” Forty of those 128 will make it to the final cut. Kamath expects results to start showing in two to three years.” There are a lot of really talented people who have great ideas, but lack the initial capital required to take it from zero to one. We want to encourage and inculcate more people from Tier I, II, III cities, who have no access to capital, and to give them a grant to get started. All of this somehow comes back to how we help more young Indians become entrepreneurs. It’s an endeavour towards that,” he says.

Two years ago, Kamath decided to be part of the Giving Pledge started by Bill Gates. He was the fourth Indian businessperson to do it. The pledge asks for a minimum 50 per cent of the pledger’s wealth to be given to philanthropy during one’s lifetime or in his or her will. Kamath thinks he might end up giving all of his wealth because he does not have dependents. He is unmarried and without children, and has no plans for any.“I think the pledge is easier for me to do versus other people. So if you’re not going to get married or have kids, when you’re dying, you have one of two choices—either use the money wisely and give it to causes that you believe in, or leave it to the bank that had your money to begin with. As per the pledge, you have to give away a minimum 50 per cent of the money you have or have earned in your lifetime. Most people do a lot more. I think, for me, if I don’t have dependents, I will invariably do 100 per cent,” he says.

Considering his age, there is still a long runway left for him, especially if his faith in the India story plays out. He doesn’t doubt it: “We are a young, hungry, ambitious country. We will grow faster than most other countries over the next decade and entrepreneurship is the way to take advantage of it.”

Indian growth storyinvestormentor to young entrepreneursNikhil Kamathphilanthropistpodcasterventure capitalist