Zerodha founder and CEO Nithin Kamath has highlighted regulatory risk as a major factor that can affect businesses operating in India’s tightly regulated financial sector. His comments came after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to insurance distribution and commission structures.
Kamath said changes in regulations can quickly alter the economics of regulated businesses. He pointed to the broking industry, saying rules governing retail futures and options (F&O) trading, earnings on client funds and margin trading facility (MTF) requirements could affect brokerage revenues and business models.
He also said investors should not simply extend a regulated company’s current revenue and profit trends into the future while valuing the business, as regulatory changes can alter earnings and valuations.
The comments follow IRDAI’s consultation paper, “Recalibrating Economics of Insurance Distribution”, which proposes changes covering commissions, expenses, distribution structures, disclosures and market conduct. The proposals include product- and channel-specific commission limits and tighter expense norms.
The consultation remains at the proposal stage, meaning the suggested changes are not yet final regulations. Stakeholders have been invited to submit comments on the proposals.
Kamath’s broader point was that regulatory changes remain an important consideration for fintech and financial businesses because shifts in rules can influence how these companies generate revenue and operate.
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