stock market crash | rise in the price of oil | inflation: Zerodha added maximum users on day market fell 5%: Nithin Kamath
What retailer participation has looked like over the past few months. especially in times of high market volatility? Also keep us posted on any new demat accounts that have been opened. Has the growth been maintained from month to month?
We are still adding as many customers as we did a few months ago. Initially, I thought the market would see a downturn and we’d probably see a dip in terms of new user acquisition, but at least for now, it’s sustainable. Last Thursday when the markets were down 5% was the day we opened the maximum number of accounts in a single day so far. It seems like a lot of people follow the markets and also look for opportunities to enter the markets.
Recently you posted this information about 99% not even beating fixed deposit rates. With the kind of volatility we’re seeing, people must have lost a lot of money in the recent sell-off! How do you advise retail investors? Should they take money out of the market?
First, the benchmark 99% were people who trade the markets and not really investors. One of the only reasons our company and the industry has grown is that, overall, investors have made a lot of money over the past two years. Lots of people came and bought the dip, then went up and invited friends over to invest.
But when people start trading for a living, or start allocating large amounts of their own capital to actively trade in the market, that’s when the odds of winning are definitely stacked against them. So in terms of advice, it’s the same kind of advice. These are just five to six very basic rules to follow, namely: don’t get into debt, don’t allocate too much of your capital to trading, investing or the markets themselves, because the odds are against you if the markets can induce greed very easily. This usually happens when you are over-indebted.
As a business, we have consistently told clients not to take advantage of leverage. Even the leverage that exists within the ecosystem is almost like a hidden feature and it doesn’t show up to people by default. Yesterday I was listening to Charlie Munger’s quote “as long as you don’t leverage and sell short in the markets, the odds of winning automatically increase significantly” because we are in a growing economy and as long as India is doing well, businesses in India will do well too. So portfolio diversification, diversification between sectors, no leverage and even if you trade, do it with the small amounts of your capital – no more than 5-10% of your net worth. We constantly nudge our customers, users, and even non-customers. We’ve been pretty vocal about it.
In terms of the rapid downward movement you’ve seen for the market, have you seen a substantial decline in volume? People would have been forced to cut their posts. So, have these volumes suddenly dropped?
Volumes are a volatility factor. It’s just not the market going down. As long as there is volatility, trading volumes increase. So, trading volumes have actually increased over the past few weeks due to volatility. There is usually also a calm after a storm and no one knows how much damage the volatility did until after a few weeks after the volatility.
So right now a lot of these volumes are really speculative in nature. People are buying and selling and while buying again the day the markets fell 5% was the biggest day in terms of new stocks being bought but in terms of selling when there is a pullback , people enter a shell. They want stock prices to recover. There is usually a loss which is positioned by a stand which is a loss release layout etc. People tend to hold stocks when they go down. Currently, since almost all stocks are probably seated, if anyone who has been buying for the past few weeks is sitting on a draw, stock selling volumes have declined, but there is a lot of interest in to buy.
A lot of that volatility, as you said, leads to an increase on the sell side in terms of volumes. But do you expect a large number of customers who have come over the last two years because of this bull run or because of this type of change and change in the savings model or change in financial investment also remain behind? Once things stabilized and they started getting their paycheck again, would you still see the systematic flows coming?
Well, the silver lining of new user growth over the past two years means that almost 70-75% are first-time users and typically under the age of 35. And the amount of money they have invested in the market is actually not much. It’s Rs 50,000, it’s Rs 25,000 maybe a month or two months salary. So the ability to take that on board and look at it as a learning experience and keep doing what they’re doing is much higher.
It’s not like 2007 when the average age of people entering the market was over 40 and people were investing money from their retirement savings. So the good thing this time around is that it’s a much younger population and there’s a lot of potential future capital that will be generated from that population. It’s good that everyone is educated on financial assets and if there were people who are sitting on losses, if I were to bet on that, I would say they will keep coming back. Of course, this all has to do with how the markets are as a whole. If we go into a multi-year bear market, I don’t know how that will play out, but if the markets were to rebound, that crowd will come back and invest more.
Now, retail investors can purchase a Tesla and FAANG shares through the NSE Subsidiary Exchange at GIFT City. What will this mean and do you have any plans for it?
We have applied for membership. It is still in a regulatory sandbox, the IFSC. This means that NSE IFSC can’t really onboard more than 10,000 customers before it can open up to everyone and every customer. I think it will take a few months. Hopefully we’ll be alive by then. The IFSC route solves two problems for people wanting to invest in international stocks. Generally, the total cost of transferring funds was quite high if one had to send money from India to a US broker. But in IFSC one can potentially reduce the cost because the bank on both sides is really an Indian bank and so when you send money to IFSC it is converted to dollars but because the banks on both sides are banks Indians, it can be done at a much lower transfer cost.
The second problem that the IFSC solves is the whole trust deficit that exists. If one invests with a US broker, they are not really regulated by Indian entities and so if there were any issues, it potentially opens up challenges for Indian resident investors. Now the fact that the IFSC is regulated by the IFSCA which is an Indian government body can help bridge that trust gap that many people had when sending money out of India to a broker American they don’t really care about.
In the long term, this is a very good initiative. There are still a few cracks in the armor in terms of transaction costs. One of the reasons for growth for all of us is also the payments side. While we talk about IPO and online onboarding, personally for us a lot of new customers came in because when people intended to buy or sell they could transfer money instantly using UPI or any Indian stack. So until the remittance issue is resolved, I don’t really see how this is going to spread. Someone should solve this problem which is to be able to instantly send money from India, for example, to GIFT City offshore. If this were to be resolved, the scope would become considerably huge.