Nithin Kamath: Zerodha reports 50% jump in FY22 profit but Nithin Kamath warns of Robinhood-like revenue fall for brokers

NEW DELHI: Nithin Kamath – Founder & CEO – Zerodha says the ongoing liquidity-driven bull run has helped his company deliver over 50 per cent growth in top and bottom line for FY22 on an already large base.

In a series of tweets, Kamath said every time the media covers financials, his firm ends up sharing more context to avoid misinterpretation.

Shift to work from home (WFH), increased savings, bull market, volatility, IPOs and India stack led to significant growth in the investor base in the last two years, Kamath said.

In almost every bull market, he said, it looks like the broking industry can grow forever, but it cannot — there are significant risks.

“Almost all revenue for the industry comes from active traders, and being one requires lots of skill & some luck to do well. Most traders tend to become inactive when they don’t earn. This means the industry needs a steady influx of new active traders even to sustain revenue,” Kamath said.
To get new users and hence new traders, said he, one needs the market to remain bullish.

“If the markets take a turn for the worse, the user growth drops, leading to a reduction in active traders & hence revenue. And brokerage firms can do nothing; it is like being a sitting duck,” Kamath said.

The stock price and financials of Robinhood over the last few quarters show just how correlated the performance of retail brokers is with market sentiment. It’s a preview of what falling markets can do to retail broking even in India, Kamath said.

The market cap of Robinhood is down to $9 billion from a high of $80 billion, it still has $6 billion in cash.

“This is largely because of the falling new user growth due to the sharp drawdowns in broader US markets (will be much worse this quarter), leading to much lower MAU, revenues, and rising losses,” he said.

Kamath said India has hit a plateau in terms of new users and revenues. “We are still not seeing a drop as our markets are holding up. But if markets fell, the impact will be as much as Robinhood in revenue. I keep reminding myself and our team of all of this to temper expectations,” he said.