#NazaraTech to raise Rs 100 crore from Nikhil and Nithin Kamath for strategic acquisitions and investments.
#Zerodha’s Co-Founder Nikhil Kamath joins in to discuss the details with BQ Prime’s Alex Mathew. #BQLive
#Zerodha’s Co-Founder Nikhil Kamath joins in to discuss the details with BQ Prime’s Alex Mathew. #BQLive
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00:00 Hi, thanks so much for tuning in. You're watching BQ Prime. My name is Alex Mathew.
00:05 Gamified e-learning and e-sports is a great business to be invested in.
00:10 Nikhil Kamath of Zerodha believes this very strongly and that's why partnerships associated with him have raised their stake in Nazara Technologies.
00:21 Nikhil is joining us live to talk about the pieces behind that and a lot more.
00:25 Nikhil, thanks so much for taking the time and for speaking to BQ Prime.
00:29 I will ask the most obvious questions first and then we'll delve a little deeper into some other aspects of your investing journey.
00:36 But first, what's the thesis behind this? You already had stake, you've raised it. Why?
00:41 Hi Alex. So broadly the thesis for me is I think the future generations, people under the age of 16, 17, the few that I interact with.
00:56 They seem to really lack the patience to consume data like we might have in our childhoods.
01:03 I think the need for data to be faster, more interactive in nature and a feedback loop seems to be a game changer.
01:11 Things like movies and cricket that I grew up on, I don't think the youth of today have patience for it.
01:18 Outside of that, this seems to be a very quickly growing sector across the world.
01:26 And for me, this particular company was the only play in India because it happens to be the only listed company in this space.
01:34 But I'd like to qualify this by saying, you know, like I might buy something, generally whatever I buy is with a really long term perspective.
01:44 And I'm looking at the company's journey over 5 years, 10 years and trying to figure out how India can evolve over such a big period in this space.
01:54 But I don't think anybody should consider news about me buying something as a reason for them to buy and stuff like that.
02:01 I think people have to make up their own minds because my intent with my investments are really, really long term.
02:10 That's an important qualification to make. But at the same time, I think, Nikhil, because of the kind of access to information and the way that you study things,
02:19 I think a lot of investors can benefit from that. But all the same, thanks so much for that qualification.
02:26 You invested in a lot of companies in the private space as well. So I'm curious, in this gamified e-learning, in this e-sports space, do you have any other investments?
02:36 Nothing right now. Nothing right now. This is the only one. Yeah.
02:40 Okay. But have you scouted any?
02:42 We did. So we looked at a lot of stuff on the private side. A lot outside India, even.
02:50 You know, there are interesting companies in America and even strangely enough, a lot of gaming seems to be moving to the Middle East.
02:59 The thing here, Alex, is I think what I truly believe in is Indians need to own more IP, which is not necessarily Indian, but even foreign.
03:12 And any kind of IP that we might get a stake in in another country, not just in the gaming domain, not just me, but any investor who does it,
03:22 from a long-term lens, I think it's a significant contribution to the India story because you're able to then bring that IP back into India, build here.
03:31 And Indians owning Indian IP, I think, is such an underspoken topic.
03:36 We've heard so much about foreign funds coming and buying Indian companies and Indian innovation. I think that too has to change.
03:44 I feel like a lot more people like I have to kind of like come forward and bet on the Indian story because if you go outside of India, this is very evident.
03:57 Like any investor you talk to in the US or in Europe today, they might be skeptical about their own geography,
04:04 but everybody is so sanguine speaking about India and so much optimism in what they say.
04:10 I think it's about time that Indian investors come out and invest.
04:15 I think you might just have gone on mute. Yeah. Yeah.
04:20 So you were saying it's high time that Indian investors feel the same.
04:26 I think that a lot of international investors have been looking at India with a lot of interest.
04:33 So that's a point well made. When you're speaking about Nazara specifically and the space that it plays in,
04:39 my understanding and my reading of it is that a lot can change in a very short period of time because of how disruptive this technology can be.
04:48 Is that something that you considered when you invested in? What are the plans going forward?
04:53 Are you going to raise your stake? Is that something that has been spoken about with the promoters?
05:00 So nothing, no plans as such for now. I'm not involved in any kind of executive capacity.
05:07 I'm a minority, minority investor. I'm not part of the company in a way that I'll be able to comment on any of their plans in the future per se.
05:19 But from the looks of it, it looks like a sector that having exposure to over the next decade seems like a good idea to me.
05:27 And that was in a way my filter. And this being the largest incumbent is the company we went with.
05:35 What about the challenge on disruption? Is that something that could pose a problem down the line?
05:42 Disruption in the gaming space for Nazara by smaller players?
05:46 Yeah.
05:47 I mean, likely, I think there will be competition. I think this is going to be a hot space over the next decade,
05:55 especially with the advent of devices like these things are not accessible truly now.
06:03 Like if you're talking about virtual reality or augmented reality, when these things become cheaper and more mainstream,
06:10 a lot more interest, I think, will come into the sector.
06:14 And like any other company, I presume they will have to remain competitive and nimble and try and evolve and innovate faster than competition.
06:23 But because I'm not an executive, I'm not part of the company really, and just a minority investor, very hard for me to comment on that.
06:33 Fair point. Speaking of disruption, your businesses have done just that.
06:39 Have you at all considered, and speaking of gamified learning as well, the potential of gamified learning in the investing and in the stock market space at all?
06:50 Any of your businesses?
06:52 Not particularly. I think around education, gamifying is a huge opportunity.
06:59 I don't know if stock market investing can truly be gamified. I don't know.
07:05 But I think around all kinds of education, especially in schools, I think adding a game element might be the next big thing,
07:13 because if you can learn while you're playing, it might be an easier sell to a child than just learning in itself.
07:21 Okay. Help me understand beyond just this space.
07:25 And obviously, this is a theme that will play out, like you said, over the coming decade.
07:30 But beyond this, in the companies that you use to invest in other companies, what are the themes that you like?
07:37 And what sort of approach do you take when you're investing in these companies?
07:43 So I'm a big fan of the India consumption story.
07:46 If you were to look at precedent and look at what happened in China, I think beyond that $5,000 GDP per capita,
07:54 the discretionary spend goes up exponentially.
07:58 And I think it's but a matter of time before we are there.
08:02 So everything consumption, I'm kind of a fan of.
08:06 So I look at consumption very closely.
08:09 And, you know, I'm doing a bunch of research internally to figure out what is happening to consumption,
08:16 which part of consumption is going better than others, is premiumization working,
08:23 can a business scale online in India or does it have to be online plus offline model?
08:29 So these are a bunch of things I'm researching.
08:33 I kind of shoot a podcast and, you know, as part of that, the next few themes are all around consumption,
08:38 because I want to personally learn a lot more around consumption, the breakdown, the trends around it.
08:45 Outside of consumption, another thing I've been looking at is senior care.
08:50 It seems evident that fertility rates across the world are dropping as they are in India.
08:57 And outside of, you know, catering to the older folk in India in 20, 30 years from now, 40, 50 years from now,
09:06 even as an export destination for senior care and services around that, India is very aptly situated in my mind.
09:15 And I think that could become a huge opportunity.
09:18 I know we're seeing some semblance of medical tourism really pick up in India,
09:23 but I think the whole host of senior care plus living opportunities, it could be a huge thing in India.
09:30 OK, interesting. When you look at potential companies to invest in,
09:35 my understanding is that a large number of the companies you have already invested in in your portfolio are private.
09:43 Are there more opportunities, you think, in the private space than in the public space?
09:48 And what do you bear in mind when you do consider investing in listed companies?
09:55 Well, listed companies typically do a very top down analysis. It's which sector first, why the sector.
10:03 The next question is which company in that sector.
10:07 The basic idea is big sectors with tailwinds and the odds of you getting lucky are likely higher.
10:15 There are a bunch of companies that we have taken exposure to.
10:18 But like I said earlier, like my investment thesis is really long term, you know,
10:23 and I'm looking to return maybe 15 percent a year would be a good year for me.
10:28 So most of what I would have bought is not with the intention of selling in two years, three years, five years.
10:34 It's when I say long term, it's truly long term.
10:38 So there are a few there are a bunch of things that I like.
10:41 There is, I think, banking that I've liked for a long time and I continue to like it.
10:47 I feel like the share of banking moving in the private sector's direction, the pace of that is going to continue to grow.
10:56 OK, interesting. When you do look at investing in the broader spectrum and here I'm talking about your approach,
11:06 obviously, and I'm hoping that by looking at your approach, perhaps some of my retail audience will benefit again,
11:14 because if I look at the year to date flows just into mutual funds and not even into individual stocks,
11:21 the kind of money that is flowed into small caps, it's amazing.
11:26 You're talking about 30 plus thousand crore that is floated into actively managed mid cap and small cap funds.
11:32 A lot of retail interest, even in your platform, into the broader end of the spectrum.
11:36 When you look at these companies, you say top down, but do you say that, would you say that you need a lot more due diligence,
11:44 a lot more research when you choose these companies than you would for a more established player?
11:52 Yeah, I think you do need a lot of diligence. I know a lot has been said about Indian companies and one or two startups.
11:59 Governance is not at par with international levels and all of that. People have to qualify this and realize that everywhere there are things that go wrong.
12:10 And I think the scale of things that have gone wrong in India, if you look at the US, you look at FTX, for example, this happens everywhere, all across the world.
12:20 But diligence is required. But India broadly, from a corporate governance standpoint, I think the SEBI and RBI are totally on point.
12:31 If you look at a lot of the changes that SEBI has brought about in the last year, year and a half,
12:39 have increased the transparency around this investing ecosystem so much.
12:47 And I think they're going in the right direction and they will continue to do more.
12:51 But I think, even if I were to compare Indian regulators to regulators outside who, in other countries, react post the event,
13:01 here the Indian regulators seem to be acting, preempting events to a certain extent.
13:08 And I think that is stellar. And they don't get enough praise for this, but they seem to be doing an incredible job.
13:14 Now, I am wandering a little further from the original ambit of this conversation,
13:19 but if you will permit me, I do want to ask about the AMC business, Zerodha's AMC business,
13:25 and the products that you are trying to launch there.
13:29 Obviously, this is all in the passive space.
13:32 And I understand that you sent out an application for an index fund for ELSS 250, as well as for a stock 250 index fund.
13:44 What gave you the kind of conviction to follow this passive route as opposed to an active route?
13:52 Because, again, the way that the industry has functioned so far is that the margins are way for thin.
13:57 So you need that kind of scale when you want to launch that business.
14:04 So, Alex, historically, if you look at data, passive seems to have outperformed active significantly.
14:11 And I think this is net-net very good for the retail audience that the cost of entering these funds has dropped as drastically as it has.
14:21 But on the AMC side, I'm not involved at all. We're doing this in partnership with another company.
14:27 So, you know, I wouldn't even know enough to comment about what funds they're forming.
14:34 You know, they have their own fund manager. It's a separate entity. They have their own IC team.
14:39 So very hard for me to comment on the AMC.
14:43 Fair point. Fair point. I think, you know, we've covered a lot of very interesting topics today and you've been very forthright.
14:51 Thank you so much, Nikhil, for taking the time. Pleasure speaking with you and look forward to the next chat.
14:57 Thank you, Alex. Cheers.
14:58 All right, viewers, there you have it. Nikhil Kamath of Zerodha joining in on BK Prime.
15:02 Do let us know what you think and stay tuned. Lots more coming up over the course of the day.
15:07 Thank you.
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