Long India, short US and other EMs: Zerodha CEO Nithin Kamath

“By outperforming, I don’t mean our markets will go up, but we will probably not fall as much as others. And if we don’t fall as much, we will probably outperform on the upside. This is because of negligible leverage in our markets & all the folks waiting to invest in India,” Kamth said in a tweet.

Talking about market leverage Kamath said that in bearish times, when buying interest is low, forced liquidation of leveraged positions create havoc. The down moves are exaggerated, as it was seen in highly leveraged markets like the US or even crypto in the last 12 months, he said, adding that this also creates spikes on the way up.

“After all the regulatory changes in the last 2 years by SEBI that reduced leverage, there hasn’t been an instance when our risk team had to square off the positions of a large group of customers due to MTM losses,” the billionaire broker said.

“Also, most active leveraged trading activity in India has moved to indices which are much less volatile than stocks and hence less need to force close positions. No forced square-off equals lower volatility which is equal to lower exaggerated moves on the downside when markets turn bearish,” Kamath added.

Although there is a lot of interest in India, he said if the US bear market continues, there is no way we will be able to escape. “We will eventually most likely follow the trend. But I guess we will continue to outperform on the downside & be less volatile,” Kamath said, adding that his neutral to slightly bearish view on the broking industry is because of what has been happening in the US over the last year.

“I think the trade for the last year or so, which continues for the above reasons, has been long India, short US & other emerging markets. But since I am publicly posting it, maybe this will come back to bite me,” Kamath said.