Zerodha Opts to Stay Private Amid Market Speculation
Zerodha, India’s largest online brokerage firm, has reaffirmed that it has no plans to go public, citing its self-sufficient financial model and the burdensome regulatory disclosures required for a listed entity. Co-founder and CEO Nithin Kamath clarified in an interview with CNBC-Awaaz on March 26 that the company does not require external funding and sees no strategic advantage in an initial public offering (IPO).
Kamath emphasized that Zerodha operates in a highly regulated industry and does not want to subject itself to additional scrutiny. He noted that capital market disclosure requirements—including quarterly earnings reports and investor expectations—would be difficult to align with Zerodha’s long-term vision.
Highlights from Nithin Kamath’s Statement:
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No IPO plans due to sufficient internal capital and regulatory constraints.
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Stringent disclosure norms make listing an unattractive option.
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ESOP buyback programs provide an alternative liquidity avenue for employees.
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Market valuation multiples do not justify the need to go public.
Regulatory Oversight and Market Listing Challenges
A Highly Regulated Industry Already Under Scrutiny
Zerodha’s business model is already governed by strict regulations from SEBI and other financial authorities. Kamath highlighted that adding public market scrutiny would bring unnecessary pressure on operational decisions and interfere with the company’s philosophy of maintaining sustainable growth over aggressive expansion.
Kamath stated, “If regulators come and say we need to list, then we will have to, but aside from that, there are no plans to list.”
Limited Upside in Valuation Multiples
One of the key reasons for staying private is valuation concerns. Kamath noted that if Zerodha were to list, the market might not offer a significantly higher multiple compared to its existing valuation.
He explained, “Possibly, 1-2 times the valuation, not five times,” indicating that the expected premium from public markets is not substantial enough to justify an IPO.
Post-COVID Market Boom and Increased Retail Participation
India’s Capital Market Growth Accelerated Post-Pandemic
The Indian stock market has witnessed a surge in retail participation, especially since the COVID-19 pandemic, which Kamath described as a “fast-forwarding” of market growth over the last 10-15 years.
According to Kamath, “The last 4-5 years have seen the biggest run in terms of retail participation.” The post-pandemic rally attracted new investors, leading to record account openings on brokerage platforms, including Zerodha.
However, he cautioned that market trends are cyclical, and a bearish phase could impact participation levels.
Derivative Market Trends: Options Activity Sees a Slowdown
F&O Trading Sees Reduced Participation
Kamath provided insights into derivatives market trends, noting that since October 2024, there has been a significant drop in options trading activity.
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Futures Market: Approximately 50% of clients incur losses, while the remaining half manage to turn profits.
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Options Market: The drop in participation and volume suggests traders have realized that quick profits are not sustainable.
Kamath stated, “Options are seen as a quick way of making money, and that’s not really possible in the market.”
Bearish Sentiment Slows Trading Activity
The recent dip in market sentiment has led to lower trading volumes, particularly in the cash segment. However, Kamath believes this is a short-term trend, with a full recovery expected if the market continues its bullish trajectory.
He observed, “Now that we have had a bounce back, if this continues, then definitely the activity will be back.”
Zerodha’s Unique Business Model Amidst Rising Competition
Zerodha’s Philosophy: Customer-Centric and Long-Term Focused
Unlike other brokerage firms that aggressively push trading, Zerodha maintains a conservative approach, discouraging excessive speculation.
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The company employs “nudges” to dissuade high-risk trading behavior, a feature that sets it apart in an industry where most competitors encourage frequent trading.
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Unlike other brokers who bombard users with notifications, Zerodha limits mobile alerts to once or twice a month, aligning with its long-term customer-first approach.
Kamath explained, “We do not spam. Our competitors send out 5-10 notifications on the mobile app daily, while we send them once or twice a month.”
Competition and the Need for Continuous Innovation
Acknowledging growing competition in the Indian brokerage space, Kamath admitted that every company is vulnerable to disruption. However, Zerodha remains focused on continuous innovation and differentiation.
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As companies grow larger, adaptability slows down, making it harder to pivot compared to smaller players.
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Zerodha aims to stay ahead by upgrading products and staying true to its long-term philosophy rather than chasing short-term market trends.
Kamath concluded, “Whatever fits in the long-term vision is what we will work on.”
