No indication of recession in India, otherwise markets would have reacted

All the BigTechs, Silicon Valley innovators and financial giants are now preparing for the looming recession next year. In fact, the International Monetary Fund (IMF) and the World Bank have warned countries to clamp down in preparation for a serious slump. And yet there seems to be relative calm when you look at India and its markets.

But despite the relatively balmy atmosphere in the Indian market, the startup ecosystem, on the heels of the current financing winter, is expected to face greater challenges in the near future.

On the sidelines of Invest Karnataka Summit 2022, BW Businessworld’s Rohit Chintapali spoke with Nithin Kamath (Founder and CEO of Zerodha) to learn more about the fear of a recession and how it could affect the startups in the country. During the discussion, Kamath also discussed Karnataka’s role as a business enabler in India and remote working.


You have been operating out of Karnataka for over ten years now. How has the state fared in terms of business enabler?

With time, Karnataka is fast becoming a hub for people looking to start a business. I think it’s mainly because of the availability of talent. We have been very lucky to attract good talent for the state. Looking back, one of the main reasons for Zerodha’s success is that we are based out of Bangalore. Because we were able to attract talent and keep a lot of it in our company, our turnover is very low. In fact, the turnover of our technical team is close to zero. I don’t think we would have found the right talent to match what we are building culturally in Zerodha in another city.

Karnataka has done very well. They have always been very open to suggestions. The state is very conducive to business start-ups.

Wipro chairman Rishad Premji recently spoke about how companies should try to reach talent outside the major cities rather than have them migrate, which puts undue pressure on the infrastructure of these cities. What is your opinion about this?

Not every job is suitable for remote work, but there are many tasks that can be done remotely. For example, we have people who do ‘supportive’ work and do not have to physically go to the office to work. The only question with remote working is: are you worried that employees aren’t making enough effort? But today you have tools to track efficiency. If they can do their job on time and our customers are happy, the job is done.

Rishad is also right. Because I think not all the subways of India are built to handle so many people. The cities will suffocate at some point. It is therefore very important – where possible – to encourage people to work remotely.

Zerodha has an office in Belgaum. Nearly a hundred people work from this office and many of them migrated back from Bangalore. And they love it. Consider this, one lakh rupees in Bangalore versus one lakh rupees in Belgaum is exponentially different. They have a better quality of life – better air, food and much more. Many cities are already choking. I don’t know what the government can do to improve because there is only so much space, there is only so much room left for the roads to expand.

All indicators point to a plausible recession. How will it affect Indian retail investors or those looking to start investing?

There are no indications that a recession will hit India. If it had, stock markets would have reacted.

So you’re positive about it?

I’m rationally optimistic because the stock markets tend to take a good look at the future. When you see a price on a stock, it takes into account the next three to four years into the future. So the stock market says there won’t be a recession for the next two to three years.

But what’s happening in the US is actually terrifying. Will it affect India? Possibly. If the US has repercussions, Bangalore may be the most affected city. Because a lot of those outsourcing jobs are here. There is a risk, but somehow the economy is holding up and if you’ve seen the latest GST numbers, we have our highest collections ever. At the moment it seems as if India is isolated.

How do you see the startup ecosystem being impacted by this potential recession on the heels of the funding winter?

The startup world has been a bit over the top for the past five years because everyone was getting funded and it almost seemed like anyone can build a multi-billion dollar company – which wasn’t true. We were in a bull market. So if something happens in the US, I think the startup ecosystem will be the first to be affected. Because all future valuations are really based on new investors bringing in money. And then new investors are the people outside the US. That’s where most of the money comes from. If people pull out their wallets there, the effect will be felt here. You can already see that, because many startups let people go. They are trying to become more efficient and save money because they all take into account that it will be very difficult to raise new capital for the next two to three years.

It has always been difficult to build a business. In the past three to four years, it seemed like it was easy to build, but it isn’t. So, we’re back to reality.

What is your opinion on cryptocurrencies?

Personally, I don’t understand crypto and haven’t applied my mind enough to understand crypto because it’s not really in the regulated space in the country. If crypto is regulated tomorrow, maybe I’ll put my time and effort into finding out.

Also read: Despite macroeconomic challenges, I remain optimistic about the long-term prospects of the Indian IT industry: Wipro’s Premji

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