‘If there is no greed’: Zerodha founder is skeptical of valuation of this sector


The valuations of brokerages are soaring currently, thanks to the bull markets and this trend is not only in India, but also across the world. But, Zerodha CEO and founder Nithin Kamath is pessimistic about the same.

Kamath says the high valuations of brokerages are a result of good and sustained market performance. “If people aren’t making money or there is no greed, activity usually drops off a cliff,” the CEO of India’s leading stock broker has said on Friday.

In a series of tweets, Kamath cited an old post on Zerodha, saying how tough it is for Indian brokerages to survive and make money as compared to say the US ones like Robinhood.

Robinhood is a US-based financial services company, which is a pioneer in introducing commission-free trades of stocks and exchange-traded funds.

However, a recent JP Morgan report, cited by Kamath, says Robinhood shares have been languishing below their post-IPO high of around $56.

The report claims the company’s shares could shed as much as 20% of their value by the end of the year. It’s also the only broker on Wall Street with a “sell” rating on Robinhood’s shares. Even the app downloads are down by 78% when compared with the previous quarter and active users fell by 40%.

“And this is still a bull market, just that market has plateaued last few months. Even the best products and low pricing won’t help.” Kamath said stressing on the point he made.

But Robinhood has “Crypto” as the wild card that Indian brokerages don’t enjoy as such. He says the stock price would have collapsed on this data without such diversified offerings.

Sharing another old post, that is titled, “Can Indian Brokerages Survive”? Kamath highlights how it’s much much tougher for Indian brokerages to make money compared to the US brokers still holds good.

Kamath, in that old post, has said the reason US brokerage firms can withstand this zero-commission onslaught is because they have many more ways of earning compared to their Indian counterparts.

Ending the tweet thread on the issue, the Zerodha CEO also said analysts should not assume growth rates of brokerages will sustain forever, that will be relying on retail customers, who can be quite unpredictable sometimes.

“I do not understand other sectors as well. But when brokerages globally, relying on retail customers to grow are getting crazy valuations on the assumption that the recent growth rates will sustain forever… I constantly ask myself, WTH is the world smoking,” Kamath quipped.

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