I Did It My Way Podcast: 'Trading is like dating', Nikhil Kamath tells CNBC-TV18's Sonia Shenoy

Hello and welcome to the I Did it My Way podcast on CNBC-TV18, where we speak to CEOs, entrepreneurs and newsmakers about life beyond business. In the first episode, CNBC-TV18's Sonia Shenoy speaks to Nikhil Kamath, the co-founder of financial services platform Zerodha.

Sonia Shenoy: Thanks for joining us on the show.

Kamath: Hi Sonia, welcome to Bangalore.

Sonia: Thank you, before anything, I must say that thank you for taking our jobs with this WTF podcast. It's done very well. But jokes aside, what made you think about this move?

Kamath: Well, I felt that a lot of the content that I've watched online, was not satisfying my innate curiosity and as an investor, I spend a lot of time researching many of the subjects I'm doing a podcast on. So I thought while I'm researching a certain subject, it makes sense to get Three or Four of the best guys for that subject over and discuss it together. It's one night a month and it's for charity. It's a lot of fun and these are my friends I hang out with anyway. We also talk about the same things at home so it's just like putting a camera in the room. Okay, and it's working very well. Congratulations, it's doing phenomenally well. This also brings us to the discussion about how you need to reinvent yourself, perhaps every decade or Two as you do the same thing over and over again... do you get the same feeling? Yeah, I wouldn't say I'm bored of what I'm doing today. But I have been doing the same job for 19 years from when I've been 17 years. It's been repetative from a schedule standpoint, because I do market hours every day. But in terms of the way I look at the markets, in terms of how uncertain every day in the markets is, it is still very endearing & volatile. Nobody knows what will happen tomorrow so I quite continue to enjoy that.

Sonia: I feel your pain, because I've been doing the same thing for the last 15 years as well tracking markets day in and day out...

Kamath: I've been watching you on TV throughout; all those 15 years...

Sonia: So you know what's been happening, right. But even behind the scenes, doing the same thing over and over again, sometimes you feel the need to just break out of that mould. And you've been doing it in different ways, right... not just with the podcast, you're also investing through Gruhas, into different industries. You're doing a lot of philanthropy as well so we'll talk about that one by one. But let's start with Gruhas... it's very interesting that there are different sectors and new-age sectors that you're investing into; whether it is PropTech, FinTech, or even renewable energy. How did the thought come about?Kamath: Yeah, so Gruhas is a fund where we partnered with a friend of mine - Abhijeet Pai from Hyderabad. When we began, we had one thesis, which was construction and real estate has largely not changed. How we conceive of a home or office today is much like how we thought about homes and offices 20-30-40 years ago. I've personally been overtly critical of real estate, which is still the largest asset class in the world by a wide margin, even about equity. I could not get myself to buy real estate at today's valuations because personally, I think they are ridiculous and retarded. With the current interest rates and increasing prices of homes and offices, it doesn't make sense. So the Second best way to get exposure to real estate was through investing in companies' changing technology around real estate.

Sonia: Do you still live in a home that you don't own?

Kamath: Yeah

Sonia: And you plan to do that?

Kamath: Yeah. I mean, I don't foresee that changing. The only one home that I have is where my parents live and that is more for emotional reasons. But the way I look at it is... if I'm able to earn 10%-12% on money deployed, and I'm able to rent homes in India at 3%... If my budget for a home was, let's say ₹10, and I can earn ₹12 on that. If I can rent Three or Four apartments in that ₹12, it will never make sense for me to buy a home because the rental yield I'm dishing out is significantly lower than the capital deployed and the returns they give me.

Sonia: So that is how somebody like me would think. I mean, you have seen a stratospheric rise in what you were perhaps maybe 15 years ago to what your company and you are now Has your relationship with money been the same all along? Or has it changed?

Kamath: It hasn't. And this is something I take issue to in society today, there is a certain, I would say, a majority section of society trying to look and pretend to be more altruistic than they truly are. I think virtue signalling is a problem. We are where we are today because of capitalism, along with all the flaws and the good points of capitalism. Net capitalism has done us well as a society. In society today, let's say there are three sections - section A is earning 100, section B is earning 20 and Section C is earning 10. So I would say the combination is 130. What we have to focus on is, if not for capitalism, the 130, which was 50, 10 years ago for example, would have remained 50 and all three sections would have done badly. So talking about being rich, or talking about winning at the very core, I don't think is, is a good thing. I don't think it's conducive for the economy, growth of our country, I think we need to appreciate the benefactors, the beneficiaries of capitalism. Does something need to be done about over-consumerism and the wide income inequality? Yes, definitely. But in the manner that most people on public platforms today are arguing that, socialism might be the way forward, I don't think they have... thought about what they're truly saying, or looked at the historical precedents of what happened when other people attempted things like this.

Sonia: You know, I was going through one of your podcasts that you did with Mr. Biyani and in that, he said that as an entrepreneur, because he was talking about his own journey, as an entrepreneur, it's very important to figure out what your flaws are, and prevent them from becoming fatal. Right? For him, of course, it led to a different path. But have you been able to figure out what your flaws are?

Kamath: Yeah, and there are many, I think we're all flawed, we all have shadow personalities. Every single one of us, I'm including people who we look upon, or who have conditioned us to look upon them as saints, we're all flawed. The more you deny that you're flawed is probably going to make your flaws so much bigger, because they will lie in the shadows and grow. So I have many flaws and I'm very cognisant to them. And I think, to a large extent, our flaws are a factor of our conditioning, our evolution, our childhood. Even times when we don't have vivid memories of, ages 3-4-5, all the way up until 10. They play such a big part in defining what our shadow traits are today. So I have many from that; I think I'm insecure, I'm constantly looking for meaning in things where one is not meant to find meaning. I'm probably have some kind of abandonment issues.

Sonia Shenoy: I was asking you about your flaws as an entrepreneur. But I'll take what I get. I think at least you're aware.

Kamath: I think this entire entrepreneurship thing is so overdone.

Sonia: Everyone knows Nikhil Kamath - the trader, right, but not too many people know Nikhil Kumar, the investor. So, I want to talk about that; both your personal as well as the Gruhas. But first, we'll finish with the Gruhas and the investments that you're doing there. There's lots in renewable energy, clean tech... I was reading about a couple of your companies and you're investing in the battery space as well. Do you think this is the big theme for the next decade or is it something that's played out already?

I think energy transition is a big theme. So I joined the Gates pledge recently, and we had a one week off site in Atlanta, Georgia, and the other pledgees were there. So gates is big on energy transition. I think he has an investment in as many as Five of the 14-15 companies working on the vision.

Sonia: Where else do you see opportunities because there's so much happening now drone manufacturing, aerospace, food tech. These are the buzzwords but there's also simultaneously a funding winter. So a lot of these can be cash traps as well. Where do you see the next big opportunity?

Kamath: So, energy transition is one for sure. I think senior living is a big opportunity. I would say the Third one is e-sports & gaming in India. The pace at which content consumption is happening on e-sports and gaming, it's growing significantly faster than movies, TV, old school content. For senior living, I have a very simple thesis. People used to give birth to say... Four and a half kids per couple, not a long time ago. The replenishment rate is about 2.1. If a couple gives birth to less than 2.1 children as a society, the population will start to go down.

Sonia: That is happening at least in urban India right now.

Kamath: Yeah, I think... in as many as 19-20 states, that number is below 2.1. I think Karnataka is 1.7, Maharashtra is 1.6. UP-Bihar remain above the norm. But like Japan, there will be a situation in India, not now... but maybe 20-30 years from now, where the average age of population will go up but the elderly population will increase drastically in number. That's one reason for senior living. But I would say more from a productivity standpoint, I think India is very well situated to become a hub like an export hub for senior living. We can do really affluent communities for senior living. I think our service industry, the ethos are such that we would service these seniors significantly better than our European counterparts, for example.

Sonia: So do you have any investments in that?

Nikhil Kamath: Yeah, there are a couple of them... there's a company called Emoha. There's another one called Fassco in the UAE that we're looking at right now. It's still actually an industry in a very nascent stage in India. So we look for opportunities here, but nothing significantly of scale has come about. Even hospitals focused on the elderly might be an opportunity...

Sonia: Also in FinTech, right, you guys have a couple of investments there. But there's so much disruption happening, there is a large player entering now with JFS, Jio Financial Services. So this whole lending platform space is going to get disrupted in a big way. How are you reading into all of that?

Kamath: It's so funny, I'm from the sector but everything I have been optimistic about in FinTech has never worked out.

Sonia: Like what?

Kamath: Everything like... If I say the theme, it also talks about the companies and since I'm a part of them in one way or another, it would be a little pushing the envelope by saying it. But lending has made money for a couple of players, I would say early incumbents garnered scale in that way, and had distribution. But everything new Sonia, which has come around in the last 10 years, they've all had that bubble perception of how well they will do. But I would say, rarely anyone has panned out to be what we thought they could be. I feel the addressable market for FinTech in India, the story that is sold versus the story on the ground is so starkly different, that in the manner that they sell it, it can never work out. People go around saying that India's population is a billion and a half and the number of Demat accounts are 2% 3% 4%, whatever... And because of that, this scalable market is so big. I think we're doing ourselves a disservice by looking at the ecosystem that way. The way we should look at the ecosystem is if Five Crore people in India file tax, I think that is India. Because I would assume before you buy a share, borrow money or do any of these things, you would need to have a tax return to be able to qualify for that. That is how people should look at the ecosystem. And I think India is not 140-150 Crore people, but it's the Five crore taxpayers... 5-6-7, whatever the number is today, that you're actually building a product for and if you look at the rate of change of the market, where people are paying taxes, the rate of growth is not that much. I think all efforts from the government... I think the government is doing an exceptional job in so many domains. But I think, fixating upon the few taxpayers who are doing the right thing and trying to get more out of them might not be the solution because I believe a larger section of society is actually due taxes but are able to evade them very easily. a lot more focus has to be given to bringing those people under the tax net. There are many, many ways of doing that but...

Sonia: The government is doing a good job at it, at least compared to what it was Five years ago, things have picked up quite a bit, bringing people under the tax net...

Kamath: Yeah but I don't know if it's bringing enough new people under the tax net.

Sonia: The same people are paying more taxes.

Kamath: Correct? I think that's not right. There are many ways to do this. And I say this openly so many times... property taxes exist everywhere in the world, in most developed economies. America has them, UK has them. By virtue of how our economy is designed, a lot of the black money, the tax evaded money finds its way into real estate very easily. So increasing property taxes significantly. It's a very fair tax in a way, because if you have a large parcel of land, you pay more tax, inherently, most people's net worth or the amount of money they think they have is based on the property they own. So it would fairly tax people across different price brackets. If you have a small home, you don't pay anything. But things like property tax inheritance tax, I think, will go a long way in increasing that pool from Five Crore to maybe 10-15-20 Crores. And that, in turn is probably the environment which will allow for FinTech companies to thrive because right now there is no market.

Sonia: Okay, well, hopefully things will pick up but you have spoken about Nikhil-the venture capitalist. Let's talk about Nikhil, the investor. I read this article, and please tell me I'm wrong, that you invest 50% of your money in equities, 40% in debt and the rest in Gold. Is that true?

Kamath: Right. Yeah, I would say right now the number is lower. Equity component has come down to maybe 40 to 43%.

Sonia: But why?

Kamath: I'll tell you today, when I talk to people on the ground, consumption seems to be falling in India very quickly. And I'm actually shooting a podcast on this because I don't know why and I want to find out why. I spoke to a friend of mine, who is in fashion and aggregates many fashion brands, some of the largest ones. He was telling that last year, we were growing at 20-30%, but this year our ecosystem itself is abysmal... everything is changed. I talked to a travel agent, for example, flight ticket prices seem to have come down 17-18%, not just in India, but across the world.

Sonia: That's because post Covid-19, there was an abnormally high move in consumption and prices and everything is just adjusting and correcting itself right?

Kamath: I would say the same is true for electric vehicles. I think Amazon India's growth number for the year it's something like 5% sub-inflation. Flipkart is growing at a slightly higher pace but that's because they have a larger market share in high end electronics, which are still growing. So across society consumption at different price points is either growing or de-growing at different paces. I think the very affluent is doing well.

Sonia: So it's like a K-shaped recovery.

Kamath: Yeah, but how much consumption has fallen this year versus Six months ago. Something is not seen on the numbers but on the ground it is seemingly felt. And I don't think stock markets truly reflect that pain yet. Because if I'm going to a store down the road, and I'm looking at lesser pieces of fabric being bought or clothes being bought, but stock markets are seeing a completely different story... That to me, is a different kind of arbitrage. I feel like on ground things are slowing down butstock markets are selling another narrative. Hence my number has come down from 50 to 42 and I think I'm going to go down lower to like 39-40% equity exposure.

Sonia: Are you sensing a bear market? Because that has been the narrative for a while that, America is going into a recession, which it hasn't. We're already in an interest rate cycle that's moving higher, and perhaps there could be some more. So are you sensing some sort of a bear market now?

Kamath: Calling a market bear or bull is...

Sonia: It's an old habit.

Kamath: But I don't think it helps. See, nobody knows what will happen tomorrow. Like, let alone me. I was looking at data of Fed chairs calling the markets and it sounds like they've never been right in the last 30-40 years of recorded history. If they can't call what will happen tomorrow, there is no way in hell I'll be able to. But if the data available to me is... that, consumption is slowing down, markets trading at 22-23 times earnings significantly more expensive than historical average, which would be around 17-18 times and the problems in our developed or more developed neighbours and Western peers is a lot more acute and it is felt, right! If you go to your poor London or the US, you can see the trauma and the trouble in the economy on the ground. It's very easy for you, it's very palpable, you can walk down the street and feel it. Is there a use case to make... that the world will slow down... Interest rates in America, for example, to buy a home have gone up from 3% to 7-7.5%. Similar things will happen here. In those prevailing circumstances, do you want to hold a 60-70% equity exposure? I would think not. Yeah, I like Gold. Traditionally, Gold has been inversely proportional to equity markets. I think that inverse correlation has gone away in the in the better part of the last decade. But long term, I think Gold will continue to beat inflation. And as a bet against inflation, I have at least 10% Gold in my portfolio, but I wouldn't feel bad taking it up to maybe 15-20%.

Sonia: That's how risk averse you are towards equities. That's not a good thing, especially for people who are invested. But what has been your best and worst investment in the last 20 years?

Kamath: I made my very first investment when I was a kid working in a call centre at 17. It was a company called Marsoft. I used to get paid ₹7-8k and I took all that money and bought Marsoft shares.

Sonia: It was listed at that time?

Kamath: It was listed at that time, it shut down long time ago. It was a crap company. You couldn't even have heard about it. But the Four rupee stock went up to 15 rupees in a month or Two and that got me into trading. That's why it's so infectious, right? Like dating... Trading is like dating. Yeah, it almost feels like markets have emotion and sentiment.

Sonia: It's exciting.

Kamath: Yeah. And they have a way to draw you in. They're always nicer at the beginning.

Sonia: Until it all goes downhill.

Kamath: Yeah, but you can't see that.

Sonia: Then you cash out.

Kamath: You can't say that.

Sonia: No I can't, I'm talking about you. Okay, that was your worst investment and what about your best?

Kamath: That was my best one because I sold it at 20.

Sonia: Oh okay, and the worst? Something that you felt... oh my god, this just should not have happened.

Kamath: Worst... single stock?

Sonia: Anything.

Kamath: No I'm feeling a little like, if I say something about a company and if I still have it, I don't know...

Sonia: Maybe something that’s not listed anymore?

Kamath: I need to find something. Ideally, logically, you would assume that markets have been trending up for so long. Volatility Index is so low that a black swan event is around the corner. The way to attempt benefiting from these black swan events is by virtue of the guy who coined the term right? Like you try and trade like Talib. So Talib doesn't run a fund now but when he ran a fund, he would buy way out of the money, calls inputs and lose money 11 months out of 12 or 23 months out of 24. But that One month where a black swan event happened, he would make up for all of it. And he had a really nice psychological reasoning for this. He said, the way human emotion works is, people are so much happier taking small profits every month, versus losing small amounts of money every month and making a big profit One month, because we're all a lot more risk averse. If I were to tell you... Sonia, there is ₹100 that I will wager. This is the last ₹100 in the world. If you toss the coin and you win, you will get ₹100 but if you toss the coin and you lose, you will lose ₹90. Even though mathematically the odds are in your favour, if it were the last ₹100 in the world, fear will be the superseding emotion in your heart. So there have been times where I've tried to do what Talib does.

Sonia: Not work out of fear.

Kamath: Yeah.

Sonia: Okay. So tell us about some of the recent events that have made all of us proud. Your trip to the White House. How did that happen and how did it feel?

Kamath: No, it's it's a really surreal feeling and I think our Prime Minister has been very kind to allow me in his vicinity as often as he does, and the weird thing here is that everybody paints him a certain way. But whenever you spend time with the man, he is very unlike somebody in his position all years. He doesn't want to tell you what he thinks but he wants to listen to you and hear everything you have to say. That is one of the most endearing things that I have found about him after having spent time with him.

Sonia: That's a great virtue to have. It's very tough.

Kamath: Being around him you learn so much. So this was a great experience. In the US I got the opportunity to meet a lot of people, and I loved the opportunity of asking them questions in a private domain, which was not on camera. I asked all the AI guys... I think there are Three leaders in that space now and I asked each one of them... What do you personally think will happen to the world? And we had like a private meeting where we had this very interesting debate about if you don't have to work what happens to society then. We debated this endlessly and arrived at some kind of universal basic income in the world. If not now, 30-40-50 years down the line, we'll come about, when maybe the society gets fractured into Two extremes where at the halfway line and under they are socialist in nature, where housing is free, education is free, medical is free. You can have a good life by not doing any work. And people can opt to do more and pursue capitalism at the Second half - the upper half of that quadrant. From a knowledge download standpoint, it was incredibly useful.

Sonia: It was huge, I'm sure. That brings me to a question Nikhil ...because you've gone through this journey that not too many people have gone through. I mean, from being a school dropout and now to where you are... Has there ever been a time when you felt like okay, now maybe I can take a step back and sit back and just retire? Do nothing? I'm asking you because a lot of us work out of the fear of not having enough. Right? But at what point do you feel okay, this is enough?

Kamath: So I don't think I do anything for the need for more. I don't think it is that. I feel like we all need a vocation in life. And I'm in the position, I have to understand you have to be cognisant to how lucky I have been in my life, and I have the privilege to attempt a 100 different things without worrying about the positive or negative economic imprint of those things. So I don't think I'm doing everything in order to earn money. I don't think I'm in that position in life right now. And this process of learning about new things, be it senior care, be it proptech, be it e-sports and gaming, be it consumption, media, and content... these are the things I wake up and look forward to because I'm learning so many new things and I think money is that. It's freedom, it's the opportunity, it's the ability to go into each of these worlds and be taken seriously. And I value that a lot. Personally, I flirt with boredom a lot. I've been a restless.

Sonia: Don't we all?

Kamath: Yeah, so all evolved thinkers in history... take Jung for example... they all believe that the path to evolution passes through boredom. Up until the point you can truly be still, be bored, and be okay with it and cherish it in a manner. It's like saying if you're in a room alone, you have to be in that room alone. You're demeaning the experience of being in that room alone if you're doing a 100 things while being in that room alone. So if I ever have to truly evolve in life, I think I have to make my peace with being bored. I haven't gotten there yet, but I'm attempting it. I actually set time out to do that now. See, we are all constantly in this stupid feedback loop that social media throws at us. Nobody is as happy as they look on social media. Nobody's doing as many things.

Sonia: There's this constant internal chatter that goes on and you know, it's sometimes very hard to stop that overthinking. You have to make a conscious effort to do that.

Kamath: I think stopping social media is a big help. By virtue of social media algorithms putting so much bias in our lives, we subconsciously feel everybody's doing so much. Why aren't we? And I think learning to be bored and cherishing being bored and disconnecting from these outside influences... in that vacuum, I'm hoping one can think. I don't know yet because I've not been able to get there.

Sonia: We're all trying. One final word then Nikhil. Philanthropy, right? You've decided to pledge half of your wealth, and it's very early on in your life. Was it a conscious decision? Was it a well thought out decision? Or was it an impulse?

Kamath: No, reasonably well thought out? We've been doing philanthropy for a long time. I think we've been doing it quietly compared to most people, and to be truly honest and candid Sonia, I don't think philanthropy is selfless, nor is it altruistic. I feel like everything you do in life is appeasing your own morality in one way or another. A lot of people do philanthropy because they feel better about themselves while they do it. That is a big part of the trigger even for me, but I enjoy being in that world and I enjoy some of the people I've met in that world.

Sonia: And more power to you, for everything that you do over and above, beyond your business. Thank you so much for being with us on our show and all the best.

Kamath: Thank you Sonia.