Nikhil Kamath: We may consider offering crypto services if regulations are clear

Nikhil Kamath, co-founder of alternative investment fund (AIF) True Beacon, and discount brokerage Zerodha, is sceptical about valuations, but believes that the Indian market will not correct in isolation. He spoke to Mint on the market outlook, recent listings and why Zerodha is not going public. 

How are AIFs better placed to deliver superior returns compared to mutual funds? 

In mutual funds, one can’t hedge. In mutual funds, if one wants to hedge 30% today and, then in one month, they want to change the hedge to 60- 70%, one can’t do that. So, this ability to hedge is a huge advantage. This differentiates AIFs significantly. 

You’re no fan of initial public offerings (IPOs). Why is that? 

I think the problem is with how IPOs are being priced. None of these companies are leaving anything on the table for retail investors, especially tech IPOs such as CarTrade or Zomato. There are many savvy investors who come into these tech companies’ journeys early on such as VCs (venture capitalists). And at the IPO stage, a lot of them offload a huge chunk of equity they have carried in the previous years, and they want the best buck for holding onto it, and having invested early. So, I feel that all the IPOs that have been listed in the recent past are too expensive. They may be decent companies, but at the valuation that they’re listing at, it does not make sense to lock money for a week and hope to get a return. It doesn’t seem like it’s worth the hassle to enter a company that is so expensive. 

Considering the recent tepid listings, do you see sentiments taking a hit in the primary market? 

One of the very big ones in the past has been the Zomato IPO, and the memory of Zomato will not fade away very quickly. So, tomorrow if a Paytm or a Flipkart were to come out with IPOs, people would still remember Zomato, remember the listing gains, and there would probably be an appetite for it. So, investors’ memory is very short term. So, tomorrow if there is a very big IPO, which lists at a discount from its listing price, then the following IPOs will not have much demand. But for now, I think there will still be an appetite, considering the fact that Zomato is still significantly high. 

Coming to the secondary markets. We have been hitting all-time highs almost every day. What is your call there? 

I’m fairly sceptical about valuations today. But, globally, stocks are rallying. As long as the US, Europe and South-East Asian markets are doing well, we will not correct in isolation. Something has to change globally to lead the next correction. I don’t know exactly what it will be. It could be inflation, debt defaults, considering how levered some of the debts are around the world. But at this point I’m very sceptical and, hence, when I had said we are 50% hedged today, that is in a way testament to how I sceptical feel today.

Any other sectors that you will want to bet on for next 10 years? 

I’m getting bearish right now, on things like metals and auto companies. These guys have run up a lot and, in my view, if there would have been a third wave across the whole world, there is no reason why we wouldn’t have one in India. We were complacent after the first wave, and we thought we were different. I don’t think we should commit the same mistake with the third wave. If there were to be a third wave, these things would drop again—demand for metals, demand for automobiles. I’m bearish on auto, commercial real estate and metal companies that have run up a lot. The valuation decides whether you want to make a call for the long-term. With today’s valuation, I am not really bullish on any sector. Everything is overpriced to a large extent. Information technology (IT) companies are trading at 30 times multiples, which is unheard of in our own history. Sure I like the IT sector, but do I like it at 30 times, maybe not. 

We have seen trading platforms in the US getting a good share of revenues coming from crypto trading. Do you plan to introduce it on your platform? 

No plans of doing that right now. I think the regulations around that are also not very favourable, so no plans of doing crypto as of now. 

If regulations are positive, will you consider then? 

Then we’ll probably consider it, if the regulations are clear, and there’s a clear mandate for what one should do and what one should not. Then we might take a look. 

Why is Zerodha not going public? 

We’re a fairly lean company. We don’t really have any debt. Neither do we have any external investors. We also don’t have a cost of acquisition, because we don’t do marketing to onboard our clients. It’s mostly word of mouth. So, there is no need to raise capital.