Turn of the Cycle for Nithin Kamath and Zerodha

Contents hide

1 Nothing Succeeds like Success.

1.1 Zerodha Business Model

1.2 Division of Work

1.3 A Prodigy

1.4 Zerodha’s Profits

1.5 Zerodha’s Greed

1.6 Business Mindset

Nothing Succeeds like Success.

Nothing sells better than an idea whose time has come. When the telephone was commercially launched a century back, it came with a fixed charge per month. It did not matter where or to whom user may call and how long a user may talk. One had to pick the phone and ask the operator to connect. It was a personalized service but without privacy.

Then came dialing phones replacing the operators. This was the time when calls were charged. Then the calls were metered by minutes. There were codes to dial outstation and overseas with higher charge. Then came mobile phones, launched sometime around 1996 in India. Now there were charges per second on mobile phones. At one time, a cellphone used to charge 36 rupees per minute for an incoming call. That was the year when Nithin Kamath entered the stock market at the age of 17 to manage his father’s portfolio.

Cellphone economy was disrupted by Reliance Jio in India who saw the potential in scale over the charges. Mukesh Ambani brought back century-old tariff structure of almost a fixed charge with a cap of usage so high that it felt like free, after paying fixed charge. Mukesh Ambani disrupted the cellphone market bleeding competitors. Vodafone went almost bankrupt and merged with idea. A premium brand merging with low end cheap brand is a signal of maximum disruption.

Businesses are wars without blood or physical violence. Nithin Kamath got his first right idea in life when he launched Zerodha as a disrupter in the stock market. He did in 2010 in the stock market what Mukesh Ambani would do in the cellphone market six years later (2016). Both started with an idea.

Zerodha Business Model

Traditionally the stockbrokers used to charge brokerage as a percentage of the transaction value. Concept of lots became irrelevant after computerization. Zerodha would charge on the basis of per order. It does not matter if the order was filled in multiple phases. customer pays brokerage only once. A flat Rs.20/- per F&O order. As if it was not enough, all purchase orders in cash/equity segment were made free by charging one paisa only. This was called discount brokerage with “low margin, high volume” approach.

All small brokerages shut shops. Some shut shops without informing the dormant account holders. Customers had hard times to get their holding in demat account with the depository, by opening a new account and getting it transferred.

It was a complete rout of stock-brokers who had been making a killing for nothing after computerization. In every commercial place there used to be at least one stockbroker or sub-broker. Now it is an extinct creature. The membership of stock market plummeted. But it did not happen overnight. People slowly adjusted to do trading on cellphone. And slowly ate away the business of traditional brokers.

Nithin Kamath became a hero overnight. His strength was huge bandwidth behind the app to support its ever growing customer base. The app was versatile and had all the features which existing apps offered on laptop. One could analyse a company’s fundamentals as well as technical parameters in a few clicks. It was amazing.

Personal wealth of Nithin Kamath soared. His reputation as a genius was curated with narratives and he got entry into all the right places. He is on advisory board to SEBI.

Division of Work

Kamath brothers have devised strict division of work among them. Nikhil Kamath holds final authority over stock markets, investing, and trading decisions. Nithin Kamath holds final authority over product, people, and broking operations. Nikhil stated the split directly, saying that anything to do with markets or trading is his call, while product, people, or broking belongs to Nithin. The brothers formalized this division on paper from their earliest days as partners, a structure Nikhil credited with sparing them the conflicts that sink most founder pairs. This matters for any reading of Nithin’s market persona. The brother positioned publicly as Zerodha’s architect carries no formal authority over the company’s own trading or investment calls. That authority sits with Nikhil.

The younger brother, Nikhil Kamath also conducts a podcast where he got to host Prime Minister Narendra Modi. There was not a single memorable question in that interview. It is the same with other interviews. He offers simple prompts and a mike to his guests. Presence of Kamath does not make much difference.

Interview with Prime Minister was pinnacle of Kamath brothers’ career. The wheel has taken a turn thereafter. But first about the curated persona of Nithin Kamath.

A Prodigy

Kamath is projected as some kind of genius as he started out at the age of 17. There was nothing unusual in it much less anything extraordinary. I started out applying to IPOs at that age and anybody can check with Central Bank’s record that I had a bank account opened with it at the age of 16 as I used to get a scholarship of Rs. 10/- per month. The cheque was deposited in this account and later it was used to invest IPOs.

Market’s boom and bust is as routine as day and night. If a person does not realize that in 5 years, it speaks about the perceptive ability.

We are told that Nithin Kamath invested in penny stocks and due to leverage, lost everything in 2001 when the dot-com collapse happened. That is not a profile of a genius or an average investor. This is a profile of a compulsive gambler. Later in this article I will demonstrate that the gambling instinct is still intact in Kamath.

We are told to believe that a teenager losing money in his first independent year of trading, during a market that fooled professional fund managers too, is a common story, not a special one. It is a story of average trader not a prodigal boy. In fact Kamath was 21 years old in 2001 and was not a teenager.

When Harshad Mehta’s scandal broke and markets collapsed, my portfolio built from around the same teenage years as Kamath, was zero. I had booked profit and sold everything at the peak itself. Remember it was the known peak. I did the same when Nifty crossed 26000 mark few years back. If a person does not understand market cycle, he/she suffers either from cognitive decline or obsessive gambling instinct.

Financial Markets are not the places of investment or earning. Earning happens but actually it is a place of risk management. If you fail to manage the risk, you lose money. This summer when April became so hot, I felt asleep in one afternoon without closing the open position. That siesta cost me 90K loss next morning. The risk management went to sleep that afternoon. That is laziness.

In Kamath’s life, 2001 collapse was below average judgment. A judgement unexpected after five years of experience. He chased the gambler’s return, hundreds of percent in days, instead of the investor’s return, 20–40% in a year. That greed caused his collapse.

Nithin Kamath has admitted in his own words that his brother is the better trader of the two. In a LinkedIn post he wrote that Nikhil trades better than him, and that the original plan at Zerodha’s founding was for Nikhil to trade full time while Nithin built the brokerage around him. He credited Nikhil’s trading profits in the company’s first two years with funding Zerodha’s early growth without outside capital. In a separate podcast appearance Nithin traced this realization to 2008 and 2009, saying he saw early that Nikhil traded better than him.

In January 2024 Kamath had a stroke. This happened when Kamath was about 44 years of age. He named the causes himself: his father’s death, poor sleep, exhaustion, dehydration, over-exercise. Read against the rest of the profile, this looks less like bad luck and more like the same pattern from 2001. Then it was financial risk taken without enough caution. Now it was physical risk taken the same way. The instinct to push past warning signs did not disappear with maturity. It changed arenas.

The point about this discussion is that curated persona around Nithin Kamath is a narrative. Nothing more.

Zerodha’s Profits

Zerodha’s own disclosed numbers show a company defending a large margin rather than fighting for survival. Profit fell 22.9 percent in FY25 to 4,237 crore, down from 5,496 crore the year before, with revenue from operations down 11.5 percent to 8,847 crore. Operating margin actually rose through the decline, to 63.78 percent from 55.25 percent the prior year. Cash and bank reserves more than doubled over the same period, from 10,211 crore to 22,679 crore, and the company remains debt free.

Kamath had named the cause of decline, in advance rather than being caught by surprise. In September 2024 he wrote that index derivatives formed a significant share of revenue and that he expected a 30 to 50 percent drop once SEBI’s new rules took effect.

SEBI’s 2024 to 2025 curbs cut derivatives notional turnover by roughly 35 to 40 percent, and India’s share of global options premium fell from about 35 percent of US volumes at the 2024 peak to roughly 20 percent in 2025. This was used in 2026 to justify the increase in Zerodha’s charges.

Zerodha’s Greed

A 55 to 64 percent operating margin is exceptionally high for any business, and unusually high even by the standards of asset light fintech. For comparison, most listed Indian financial services firms run operating margins in the 15 to 30 percent range.

A discount broker converting more than half of every rupee of revenue into operating profit, and improving that ratio while overall revenue fell, is not a company under margin pressure in any ordinary sense.

Zero brokerage on cash delivery in equity trades is now an industry parity that Zerodha itself created in 2010 and everyone has since matched. F&O orders are charged Rs. 20/- per order.

From April 1, 2026, Zerodha charges Rs 40 per F&O order instead of Rs 20 when a trader’s collateral margin cash shortfall exceeds Rs 5 lakh. Kamath explained it publicly as a funding cost problem, the margin trading book grew past Rs 5,000 crore and Zerodha was effectively lending capital for free.

It may seem defensible business reason, but it is not. For people who have money in their trading account, irrespective of the amount of margin, the entire money is locked till the next day morning 7.30 AM when actual settlement takes place. Remember the transactional liability is calculated instantly. Therefore, Zerodha also has others’ funds at their disposal, interest free till next day.

In short, Zerodha is converting a previously flat, transparent fee into a tiered one. It now follows the exact structure that it sought to abolish by its launch in 2010. Yesterday’s David is today’s Goliath. And it is being challenged by competition.

Kotak Neo charges Rs 10 per order on its Trade Free plan and made its trading API free of cost from November 2025. Shoonya charges Rs 5 per order on intraday and F&O since December 2024, after SEBI banned the exchange turnover rebates that had funded its zero brokerage model, and its API has always been free. Both undercut Zerodha’s Rs 20, now Rs 40 for some traders, on the exact metric Zerodha used to undercut everyone else in 2010. There are many other players who are also undercutting Zerodha in terms of pricing.

Zerodha is now lagging behind competitors. It does not offer algo-trading. For that it offers API access. Zerodha used to charge Rs 2000 a month for API, historically, but as of 2025 it made order execution free and cut data access to Rs 500 a month. As stated Kotak is offering order execution free on API access which is also free.

Kotak offers algo-trade through its app without extra charge. One can create a transaction with upto 12 legs simultaneously. One can set time of exit in terms of price or time or both. The way volatility has spiked since January, this feature is no more a luxury but it has become a necessity. Kotak does not charge any fee for trade done through API route.

Business Mindset

There are three broad mindset on which businesses operate. All are concerned with return on investment. Traders start with target say 1% per day. If the market condition is not right, they scale it down to 0.1% till things stabilize. Some ROI is better than zero or worse loss. Industrialists do not scale down profits, they sell at loss too in bad time to keep the market share. They treat customer loyalty as an asset.

Kamath claims to be a trader not a rent seeker but his behaviour is that of a rent seeker. He has recovered all his cost in last 15 years. He has huge personal wealth and huge customer base.

Kamath is trying to improve the profit margins of Zerodha. He is not in loss. His profits have gone up, yet he is trying to squeeze the customers to maintain his profits.

Kamath himself has publicly stated that the zero brokerage delivery model may end, citing the F&O crackdown as the reason. That model was the one true industrialist sacrifice Zerodha ever made, the one that built the company. Threatening to retire it under pressure is not a trader scaling down a target. It is the toll keeper deciding the toll needs to go up precisely when traffic is down, which is the rent seeker’s logic, not the industrialist’s.

As stated above, the causes of the 2024 stroke betray overreach on his body and his business decisions are now showing the same disregard for limits in how he runs the company, reaching past the point where caution would say stop. Greed never knew about stops. No?

His argument is that there are only 10,000 customers in F&O segment, affected by his decision to revise the charges. Perhaps, these are the people who trade against margin. His statistics may be accurate but he did not take into account the sensitivity of these traders. If they are trying to earn just Rs. 100-200 per lot, the revision in fee directly impact their earning. Hope Kamath has not assumed that they are also trying to become rich overnight like he did in years 2001.

This analysis leads to the only conclusion that Zerodha is completing one cycle. It will depend upon the management to decide what shall be its next cycle and where it will take the company. Personal wealth of Kamath brothers is irrelevant.

As for me, I have decided to move on. I am in the process of closing my trading account with Zerodha but it can only happen gradually. Though, I have a feeling that I am not alone.

References:

Share on Social Media