It becomes a ‘deep pocket game’ if companies sell exactly the same product, says Zerodha CEO

In an interview to CNBC-TV18, Nithin Kamath, Founder & CEO of Zerodha highlighted several challenges that businesses are currently facing, including intense competition, decreasing user growth, and the threat of consolidation.

One of the most significant challenges that businesses are currently facing is intense competition. Kamath pointed out that "it becomes a deep pockets game if 5 companies are selling exactly the same product." This is particularly true in industries such as e-commerce and online retail, where customers have a wide range of options to choose from. In order to stand out from the crowd, businesses need to be able to offer something unique or different from their competitors.

Kamath said, “If the product is very commoditised, if five people are selling the exact same thing, I don't even know if you know, if there is a point in running a business like that. Because at that point, and if it's a commoditised product, it automatically becomes the deepest pocket wins kind of game. So it is about constantly trying to up the product.”

Kamath believes that cheap capital has wired everyone to think about business in terms of valuations rather than profitability.

He said, “I don't think investors today really look for profitability. I mean, they are looking at creating max valuations, because max valuations exiting through capital gains is really a very tax efficient way to be able to make money versus trying to take profits out, paying whatever, like, 2.5 times more taxes. So it probably also, this whole cheap capital has also wired everyone to think of business as valuations, and not in terms of business in terms of, like profitability.”

Kamath pointed out that many companies are finding it hard to generate revenue, and as a result, many people are struggling. Speaking about broking he said, “Even in broking, I somehow feel like we have kind of hit a plateau. Because the new user growth has dropped, existing users aren't really adding more as such. So I think the big challenge is that while India is a large country, we are still a poor country. And the real problem in this country is to get rich, inclusively, get a lot more Indians to a position where they can actually spend money online.”

Kamath believes that the ability to make money from the masses is key to success. He warned that "if funding winter doesn't end, many companies will merge with others."

He said, “India is really hard when it comes to the ability to be able to make money from the masses. The issue is that, if the winter doesn't end first, I think there'll be a lot of companies, which will pose to merge with others or forced to shut down.”

Kamath believes that businesses cannot build a successful enterprise quickly. It took Zerodha a 20-year journey to achieve all its success, and all of that success came after 15 years.