Nithin Kamath, Founder and CEO of Zerodha, made a few innocuous-looking tweets yesterday which should send the entire broking industry, promoters, and investment bankers into some soul searching. I had recently read in Simon Sinek book “Start with why”- while most companies are able to articulate what business are they in and how they are going to achieve it, the reason for “Why are you in business” is soon forgotten.
A quick search in Google “Why Icici Direct”, “Why Motilal Oswal” or “Why Edelweiss” will reveal that they claim their the largest or have the best research or simple platform. However, Nithin changed the entire discourse by saying that our entire focus is “customer profitability”. We are in the business to ensure higher profitability for the customer. Only when this is your focus can you have “nudge” like functions that reduce trading and revenues for Zerodha but are right for the customers. One of the nudges that help me is that the software highlights which options are illiquid and does not let me place a market order. (ICICI direct had been shameless and fraudulent in squaring of my illiquid options despite margins citing covid urgency (causing me unwanted loss), I approached NSE but that’s a strenuous, time taking battle)
Nithin is forthcoming in saying that what is right for investors is hardly ever right for consumers. Zerodha employees do not have any revenue targets. Whereas all other brokers are largely focused on revenue targets. I regularly get unwanted emails and calls from inexperienced relationship managers from ICICI direct trying to advise me when they hardly understand that my experience in markets is 5x of theirs. Zerodha surprisingly does not sell me any advice nor makes any stock recommendations.
Can you trust bankers to give you the right advise?
I have been part of many investment banking pitches. And one of the sections of the pitch is why the timing is right to raise money in markets. This section talks about rising markets, high FII interest, and recently successful IPOs. There is no section which talks about “Why the company does not require money” or “what are the costs of raising equity”. The cost of return on capital of freshly raised money, the pulls and pressures of quarterly estimates, etc. Most Indian promoters believe that the cost of equity is zero and bankers let them leave in fool’s paradise.
I am a happy Zerodha customer since Dec-2020 and I am not using Zerodha because it’s cheap. It’s because the product, interface, and platform are much superior. And like one of my friends said give me 3-4 more promoters like Nithin whom I can invest in and I am sorted for life.
Things to remember:
Investment bankers have revenue targets – they are worst suited to advise you on the timing or need of IPOs.
If you are in short-term game – your targets are more brokerage from customers. If you are in for greatness, its more profitability of customers.
Equity capital is one of the most expensive capital.
PS: Note to self – convert 10 family members to Zerodha this year.