Zerodha's Nithin Kamath says 'pessimistic about valuations of brokerages around the world'

Zerodha co-founder Nithin Kamath.

Nithin Kamath, the co-founder and chief executive officer of online stock broker Zerodha, on October 1 said he was "pessimistic" about the high valuations of brokerages globally.

The reason behind his pessimism, said Kamath, is that brokerages are linked to market, and if the latter is unable to make money, the activity involving brokerages is likely to fall steeply.

"I am pessimistic about the valuations of brokerages around the world, including that of Zerodha. This is because the performance of broking is directly tied to market performance. If people aren’t making money or there is no greed, activity usually drops off a cliff," he tweeted.

According to Kamath, the "best tech, products and low pricing" would not help in such a scenario.

To validate his argument, the Zerodha CEO shared a recent JP Morgan report on American retail brokerage firm Robinhood, which highlighted how its shares have been hovering below the $56-mark, which it touched following the initial public offering (IPO) in August.

The report pointed out that Robinhood app downloads are down by 78 percent quarter-on-quarter, and active users have also plunged by 40 percent as compared to the previous quarter.

"And this is still a bull market, just that market has plateaued last few months," Kamath said.

Also Read | Dhan takes on Zerodha, Groww; eyes 1 million users in 18 months

The best tech, products & low pricing won't help.

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A new report from JP Morgan on Robinhood (RH) said that app downloads are down by 78% QOQ and active users by 40% QOQ. And this is still a bull market, just that market has plateaued last few months. 2/4https://t.co/uEzQD4PByc

— Nithin Kamath (@Nithin0dha) October 1, 2021

Kamath, in his series of tweets, also noted that analysts should not assume that the recent growth rates would continue forever.

"I don’t understand other sectors as well. But when brokerages globally, relying on retail customers to grow are getting crazy valuations on the assumption that the recent growth rates will sustain forever, I constantly ask myself, WTH is the world smoking (sic)," Kamath said.