Why Zerodha founder Nikhil Kamath is worried consumption may slow down in India

Nikhil Kamath, Co-Founder of Zerodha, on Tuesday, October 23, said we need to be a little cautious on the India consumption story, considering global challenges. Speaking during a panel discussion following a high-level CNBC-TV18 India Business Leadership Awards (IBLA) 2023 jury meeting, Kamath said India is better placed compared to other countries and shed insight on the evolving Indian market.

Kamath's stance on India's consumption story may seem contrarian compared to the prevailing sentiment, but he said it is founded on a global perspective. He acknowledges that India's economic growth, like many parts of the world, has faced challenges due to higher global interest rates. The United States and Europe have seen signs of economic slowdown, and the world watches India in relative terms. From this standpoint, Kamath believes that India's growth has not been as negatively impacted as other major economies.

Kamath also credited the Indian government for effectively marketing the India story to the world over the past decade. The narrative that has been crafted by the government has painted India as an attractive investment destination, and this positive perception has contributed to the country's resilience in the face of global economic challenges, Kamath said.

Interest rates play a pivotal role in economic performance. While the US has seen a substantial increase in interest rates, India has also witnessed rate hikes, albeit to a lesser extent. Kamath acknowledged that these interest rate increases may not have yet had a significant impact on consumption, but he cautioned that the higher cost of capital, if sustained, is likely to lead to a slowdown in consumption across various sectors, starting with real estate.

Kamath's assessment centered around the concept of relative performance. While India may face challenges, as long as it continues to fare better than other global economies, it is in a strong position, he said, adding that comparison with other slowing economies puts India's performance in a more positive light.

When asked about his investment strategies and the sectors he's eyeing, Kamath emphasised the need for India to allocate more resources towards research and intellectual property (IP) creation. He said he believes that much of the innovation and IP generation is still happening outside of India, and the country should shift its focus towards fostering more homegrown innovation.

Kamath also commented on the ongoing transition in the automotive sector, where electric vehicles (EVs) are gaining prominence. He highlighted the competition between established industry giants and new players like Ola Electric, based in Bangalore. This sector represents a dynamic growth opportunity, and Kamath suggests that keeping a close watch on EV developments is a wise investment move — will legacy players cash in, or will it be upstarts like Ola, Ather, etc?

In conclusion, Kamath emphasised the importance of relative performance, the impact of interest rates on consumption, and the need for India to focus on creating intellectual property. The discussion highlights the dynamic nature of the Indian market and the opportunities it presents for investors and businesses alike.