Nithin Kamath

Seema has bounced back in just ten months since her breast cancer diagnosis, the mastectomy, chemo, & radiation, thanks to her healthy lifestyle before & after.

Investing is not just about stocks & MFs; it's also about taking care of your health.

Context: https://seema.page/

There has been a spate of suicides due to harassment by loan agents of shady and illegal predatory loan apps. If you are a victim of harassment, file a complaint at https://cybercrime.gov.in or call 1930. We have laws that protect you from harassment.

These apps lend at exorbitant rates, as high as 100–200%. They also get access to all contacts and photos when users install the app. If they don't repay, they start harassing all the contacts with calls and lewd pictures that are morphed.

It is insane to share all that information for a loan. It's also absurd to borrow money at rates of 50-100% per year. It is almost impossible for most people to repay the principal at those rates.

The vast majority of these apps are illegal and unregulated. Since many users discover these apps there, the app stores should do more to filter these shady apps from being listed.

There's a new scam in the name of FedEx, Blue Dart, and other courier companies that you need to be aware of 👇

A colleague got a call from a person claiming to be from FedEx saying that a parcel had been confiscated by the police because drugs were found in it.

Since he was expecting a courier from an e-commerce platform, he panicked. He then got a video call from someone claiming to be the police and issued this official-looking letter. They shared the bank details to transfer funds to release the package.

Since the fake police had his AADHAR number, this made the entire ordeal more convincing. This person panicked & transferred the money immediately.
If this can happen to a person working in a company that constantly sensitizes everyone to cyber fraud, it can happen to anyone.

In a situation like this, the best thing is to say, I will get my lawyer to speak to you; it doesn't matter even if you don't have a lawyer. Most fraudsters prey on people who panic and react instinctively. Slowing down before reacting is the key.

We've always believed that bonds and maybe not stocks are the right stepping stone for most Indians—better than FD returns but lower risk than stocks.
But bonds have been an HNI product, and no one sold them to retail. But SEBI has just made some important changes recently.

There were two big issues:

1. Availability of bonds with small face values. Most bonds are issued through private placements and have face values of Rs 10lakh+. So retail investors were priced out.
2. All bond deals had to be settled through the clearing corporations, and they only accepted RTGS as a payment mode. So the minimum transaction size became Rs 2 lakh + by default.

In the last few months, SEBI has made some key changes that make it easy for retail investors to invest in corporate bonds
1. The face value of privately placed bonds was reduced to Rs 1 lakh.
2. Brokers are now allowed to participate on Request For Quote Platform (RFQ) on behalf of investors
3. The most important change from yesterday was allowing alternate payment modes apart from RTGS.
Now, bonds less than 1 lakh can also be settled through clearing corporations.

These measures will go a long way toward making it easier for retail investors to invest in corporate bonds. As retail demand increases, we should hopefully see more bond issues with smaller face values.

Link to circular in comments.

We are launching a non-profit, @RainmatterOrg led by Sameer Shisodia with a commitment of $100mn to focus on climate change and green jobs in India consolidating our many social initiatives over the years. What's the point of fintech without a planet to live on?

https://lnkd.in/gzCYCts

You need to get a CA to validate IT returns (ITR) or get a tax audit if profit when trading is< than 6% of turnover or if the turnover is> Rs 10 crores. This is an anomaly that needs to be fixed as the markets grow. Here is why it should be fixed. It may be easy too.

If you trade stocks intraday, F&O, or trade equity delivery very actively, you need to declare any P&L as business income using ITR3. For those with a salary>2.5lk + trading business P&L, filing using ITR3 becomes mandatory even in losses. BTW, losses can be carried forward.

Exchanges share data with IT Dept. Failing to declare trading income(losses too) on ITR can lead to automated notices (exchange reports gross trading value) & penalties.
Considering the user growth last 18 months, number of notices are bound to go up exponentially next year.

The issue with ITR3 is that it's meant for normal businesses & the definition of turnover can't really be the same for those trading the markets. When trading, generating turnover doesn't mean profits and you can have a large turnover with a small amount of money.

A tax audit by a CA is mandatory if profit is <6% of turnover or if turnover is > Rs 10 crores. Since salary income can't be set off against trading or business losses, any trader with a salary>2.5lk who has a tax liability will most likely need to use ITR3 & need an audit.

Turnover isn't trading volume—it's the gross sum of profits & losses per scrip. Even then, almost every active trader's profit or loss will typically be less than 6% of turnover. (check image)

A tax audit can cost > Rs 5000/Yr when the average size of a trading account is < Rs 1lk, making it extremely expensive—not to mention the potential risk of customers getting mis-sold when notices are sent.
Also, traders in tier 2/3 towns don't even have access to many CAs.

There are around 1.5lk CAs in India. So even if all CA's just did tax audits for traders, it won’t be enough to cover for tens of lakhs of traders who might need a tax audit last FY. So it's anyway impossible to comply if all traders decide to reach out to CA's for help.

IT Dept has access to all trading activity, P&L, & accounts linked to a bank. Requiring all traders to get an audit is maybe an overkill & is against the idea of ease of doing business. Also, making it easy will mean a lot more traders will start filing income tax returns.

An easy fix is to introduce a new ITR business code for those whose business income is only from trading the markets. Exempt everyone who uses this code from tax audits. If done, many online platforms can give a 1 click option to file ITR 3, similar to ITR 1 for salary.

Also, exempt those using this new ITR business code from GST registration to avoid getting automated GST notices as well.
For a detailed explanation on taxation when trading, turnover definition, and help to file ITR, check this module on Varsity.

We've never set goals at Zerodha be it user growth, revenues, or profits. The idea has been to get up every day, improve, & do what's right for users, knowing that we'll get to wherever we have to get to. The journey is a lot more fun this way.

In any case, the range of outcomes in business is mostly driven by luck and being at the right place at the right time.
Sharing so that people know that there are multiple ways to build a decently large business.

One of the worst ways to spend money as a business is to advertise against your own keywords. Businesses do this because if they don't, competitors who advertise for their keywords show up above them in search results.

So if you search for Zerodha, an ad from a competitor might show up above the organic search result. Many times these ads can be deceiving as well.

This perverse situation was the result of the lack of trademark protection.

Hopefully, this stops now that the Delhi High Court has ordered Google to have checks in place for ads that infringe on trademarks.

YAMO (You ain't missing out) > FOMO.

While this post by our man behind the scene Dr K (Kailash Nadh) might go over the head of non-techies like me, it applies not just to Tech but to investing, trading, running a business, and most things in life.
https://lnkd.in/gmqfbsNF

This section is 🔥

NSE IFSC a subsidiary of National Stock Exchange of India Limited in GIFT city is launching trading in depository receipts of 50 US stocks.
 
Here's everything you need to know 👇 (check the comments for a link to the post with a detailed explanation).

Firstly, these US stocks aren't trading on the NSE exchange where you trade Indian stocks and derivatives. This is an international exchange based in GIFT city, and to be able to trade you will have to first remit funds under the RBI LRS scheme and trade in dollars.

Trading is through unsponsored depository receipts with a T+3 day settlement cycle. Unlike India, you won't be able to buy using the sale proceeds until 3 days or sell what you bought for 3 days. No naked shorts and no leveraged intraday trades are allowed.

The problem NSE IFSC is trying to solve is to lower international remittance costs by having Indian banks at both ends of the remittance, and also to bridge the trust deficit that exists when investing through international investing platforms not regulated in India.

And yes, we are working on getting our membership and the platform ready. Hopefully by the time the product & process is well tested and out of the current regulatory sandbox.

Our monthly new account openings are back to March 2020 levels. The mean reversion in new accounts means revenues will also revert to the mean, but with a lag.
Trading volumes and stockbroking are extremely high beta and can drop off just as quickly as they go up.

Sharing also because outside observers usually look at headline numbers of trading volumes and assume that broking is a huge opportunity with a large revenue pool that will grow forever.
In reality, it's a cyclical business that tends to revert to the mean. a

I'd assumed throughout my life when friends said they WorkFromHome - it ain't work, they must be chilling. But damn, this is tough. I am overworking, binge eating, no sleep, no physical exercise, news (which is all negative) is extra depressing. I want to go back to work asap 🤞

Does technical analysis (TA) work?

The best part about TA is that it doesn't let us go against the trend and forces us to have a stop loss. It stops us from averaging down as the price falls. If traders follow these rules, odds of doing well go up significantly.

But can the various indicators and patterns magically help determine the right time to enter or exit?
My sense is probably not.
Has the trend of people who care about TA as a % of people who trade the markets increased over the last few years? I don't think so.

I remember even in the late 2000s, everyone wanted the latest indicators on their charts. Many trading forums were dedicated to various TA strategies and studies. Even at Zerodha, queries related to charts and indicators have dropped significantly in the last few years. (Check the Google trend image)

Today there are maybe not more than 15 lakh daily active traders in India. A small number in the India context but they contribute over 80% of the exchange volumes. The trend among traders today seems to be to trade news and sentiment using options strategies. (Check the image)

By the way, some of the principles behind TA can be combined with fundamental analysis to help trade better. I shared this in a blog post a few years back. (Link in comment)

Neil Borate LiveMint the dinosaur (Image) on the infographic is hilarious.

The risk with all the high growth B2C tech IPOs coming up is growth plateauing. Growth is usually a function of agility & product bets. Since these companies take more bets & are more agile & aggressive than traditional businesses, they grow faster ( at Zerodha as well).

The question then, will the ability of these companies to be agile(reason for growth) reduce because of all the scrutiny that comes by being publicly listed? US companies have managed this pressure well. But it is a more mature market. Need to see how this plays out in India.

We're in a world where no valuation seems too high as long as there is growth & a large addressable market.
If you were old school & looked at revenues & profits, you would have missed out on some of the best public (US) & private companies(US & India), in the last decade.

The other interesting question that will also get answered:
 
Will Indian consumers becoming shareholders of the brands they use increase brand loyalty? Will it maybe reduce the cost of acquisition (CAC), one of the biggest expenses for these businesses?
I guess we'll see.

People keep asking about my views on the markets. I've been at it for ~25 years & I don't have a clue. 😀
I usually say whatever the current trend will continue, as that is most probable.
But over the last year, I've been consistent that India will most likely outperform.

By outperforming, I don't mean our markets will go up, but we will probably not fall as much as others. And if we don't fall as much, we will probably outperform on the upside.
This is because of negligible leverage in our markets & all the folks waiting to invest in India.

In bearish times, when buying interest is low, forced liquidation of leveraged positions creates havoc. The down moves are exaggerated, as we have seen in highly leveraged markets like the US or even Crypto in the last 12 months.
By the way, this also creates spikes on the way up.

After all the regulatory changes in the last two years by SEBI that reduced leverage, there hasn't been an instance when our risk team had to square off the positions of a large group of customers due to MTM losses. The risk team has been complaining about much lesser work. 😀

Also, most active leveraged trading activity in India has moved to indices which are much less volatile than stocks and hence lesser need to force close positions.
No forced squareoff = lower volatility = lower exaggerated moves on the downside when markets turn bearish.

Almost every time markets gap down, we've seen more investors logging in; historically, it was the opposite. I guess this means huge buying interest. Even on the institutional side, local & foreign, private & public, there's a lot of interest in India compared to others.

But, in an interconnected world like what we live in, if the US bear market continues, there is no way we will be able to escape. We will eventually most likely follow the trend. But I guess we will continue to outperform on the downside & be less volatile.

My neutral to slightly bearish view on the broking industry is because of what has been happening in the US over the last year. To do well, we need a bull; bear/neutral isn't enough.
Also, dunno how many Indians who can invest aren't already doing it. (check the comments for the link)

I think the trade for the last year or so, which continues for the above reasons, has been Long India, Short US & other emerging markets.
But since I am publicly posting it, maybe this will come back to bite me. 😬

They say it is tough to be in business with family. Nikhil Kamath & I have been doing stuff together forever, never a fight & couldn't have had a better partner. Btw, it helps when you are like the role model😉. Weirdly first time together on an interview https://lnkd.in/gMUtSZi

Have you checked out the notes feature on Kite Web?

In my limited startup experience, paid is much easier than earned or owned, & super addictive. If businesses spend to grow, they rarely pivot from paid to focus on earned or owned unless, of course, they're running out of funds.

Word of mouth is more valuable than anything paid.

We Indians need to question what goes into the food we consume. The more we ask, the better choices we will have. The sugar content in most of our food is ridiculous. Adulteration in food items like masalas, milk and protein. And then there are substandard chemicals used in food coloring and preservatives in fruits and vegetables.

They are all slowly killing us. This applies to both packaged foods and food from many restaurants.

How large is the Indian market for B2C tech businesses in terms of users who can generate revenue?

Maybe 15 crores max!

Here's why, with Fintech as a reference, since some data is available. I guess it is important to know this, so we can all be rationally optimistic.

What do you call people who smoke even after knowing that tobacco usage causes as much as 30% of all cancers in India?

By the way, on average, smokers die ten years earlier than non-smokers. Hence insurance premiums can be up to 50% higher.

https://lnkd.in/gceUeQ5t

We just won the best retail brokerage for 2018 from NSE. There are still naysayers who question our business model. Here's why Zerodha!
https://lnkd.in/fRPkSrC

It's very hard to solve greed. If someone is gullible enough to believe tall claims, they will be taken for a ride, one way or another. The only fix is to create awareness. It isn't easy to make money trading, almost impossible, by following someone else.

Demonetization got people using AADHAR, which meant finally customers could onboard online.
Work from home enabled a lot of people who otherwise didn't have time, to think of investing.
Right place, right time - the most under-rated aspect of building a business.

A question I have been asking institutional investors in both private and public markets is - if they could enter and exit their holdings at will like retail investors(which they cannot today), would they have actually sat through the ride of their best-performing holdings?
The answer usually is no. As counterintuitive as it sounds, maybe the inability to easily enter/exit large public or illiquid private holdings forces fund managers to sit tight, which is also why they can outperform retail investors who are always trying to time the market.

With the rise of online loan platforms, online identity frauds have skyrocketed. These platforms tend to have poor checks when onboarding, given the competitive landscape and pressure to show fast user growth.
Today, it is possible to verify all the proofs submitted by a customer very easily by matching them against the source.
PAN through Income tax database.
Proof of Identity & Address through Digilocker.
Bank details using penny drop facility.
Live in-person verification (IPV) to check if the person opening the account & details being used are of the same person—the most important step to stop identity thefts.
Here's our customer verification process in detail. (Check comments for the link). And here is how you can protect yourself from identity theft.

Our gold ETF (GOLDCASE) just listed today. This is Zerodha Fund House's third fund after the Zerodha Nifty LargeMidcap 250 Index Fund, ELSS, and Liquid ETF (LIQUIDCASE).

The exciting bit is that our first NFO was in November, and as of yesterday, we're almost at Rs 600 crores of AUM with 1 lakh+ unique investors. A lot of the investors are young and starting with smaller SIPs. Getting these people into the market was one of the goals behind the AMC.

Also, LIQUIDCASE is eligible for pledging starting today. LIQUIDCASE is India's first liquid ETF with a growth NAV. That means the interest is added to the NAV, and it keeps increasing. There are no dividends, hassles with fractional units, tracking returns, etc.

To invest, just search for Zerodha on Kite. 😉

While listed high growth, yet to be profitable startups are seeing sharp drops, private market valuations are somehow still holding up. Weird times we live in. Btw if there was a way to short private companies, I think there are a few pair trades—shorting private & buying listed.

Super article on ITC by Finshots. Markets generally value companies showing potential growth more than those that generate cash. Btw large investors from this FY have to pay tax at ~36% on dividends, so dividend-paying companies even lesser attractive

The SEBI circular on API usage and algo trading is out. What you need to know:

If you’re a retail trader using broker APIs to automate trades, you can do so as long as your order frequency is below an exchange-prescribed threshold. This limit is yet to be decided.

If you’re selling algos or strategies to other traders, you’ll need to partner with a broker and get yourself registered with the exchanges to do so.

Marketplaces where people share algos for a fee can’t publish strategies without exchange registration as well as an RA license.

The exchanges will publish their own circulars with operational details by April 1.

Link to the full post in the comments.