raamdeo agrawal: The best performing brokerage and wealth management segments of the MOFS business: Raamdeo Agrawal

“The momentum of market expansion, addition of new customers and operating leverage for businesses will continue for at least the next three years,” says Ramdeo AgrawalPresident, Motilal Oswal Financial Services.

People on the street look at MOFSL’s consolidated numbers, but your operating matrix showed a very strong improvement and that’s understandable, since it’s a leading capital market-focused company. You must have captured all the momentum. How have the segments performed this quarter?
As a capital market participant, Motilal Oswal should be viewed on a quarterly basis only from the operational side, as this is where we have control and this is where the execution and investment portfolio are assessed at market price. This will fluctuate from quarter to quarter. On a basis of three to four years, we can see what our experience is.

What happens is that about 75% of the book value is in a mark-to-market type situation, which gives us a compound return of about 17-18% for the five, 10 or 15 last years. That’s part of it. But from one quarter to another, it can be positive or negative. The real thing to watch quarter after quarter is the operational side. This is one of the best performers with over 90% year-over-year growth for the quarter. Brokerage and wealth management was one of the best performing segments of our business.

Do you see the momentum continuing over the next two quarters? How visible are the different segments you’re seeing right now?
The capital market is about how the market develops. If you look at demat accounts between January 2020 and December 2021, in 24 months, demat accounts have grown from 40 million to 80 million, a compound growth of about 40% in the number of customers. Then, trade per customer, revenue per customer, and profit per customer increased.

In 2017, 2018 and 2019, every year we added around one lakh customers. This quarter alone, we added approximately 0.6 million customers. It’s an unprecedented boom in terms of adding customers, expanding the market, and if you look at NSE’s revenue, you must have seen that the number of STTs year over year increased by 57%. So what’s happened in the last two years is quite a remarkable thing from the capital market side.

We are moving from a customer base of 80 million to around 150 million customers in less than two years because the LIC IPO is here and itself can add another 20-30 million demat accounts in very little time. I think we will double again in the next two to three years. I expect the momentum of market expansion, new customer additions and operating leverage for businesses to continue for at least the next three years.

Motilal Oswal implements a kind of phygital strategy. Not only do you penetrate deeper into the regions of the country, but you also improve technological capabilities. How do the two strategies help you attract more customers?
We’ve taken a position that markets are going to develop more on the digital side and in fact the whole business is digital – whether it’s a digital with or without a board. When it is done without advice, it is purely numerical because there is no intervention from any of the advisors. Our motto is to help people make money in the stock market, not get burned. If our motto is to help them make money on the stock market, it will take support, a lot of advice, a lot of research and afterwards too, it’s hard.

But still at least if we bring in the investment culture, as the economy is going to grow, a lot of savings are going to come into the market. So we have the opportunity to serve customers by helping them make money in the market. That’s where the advice comes in and that’s where the phygital thing comes in. From now on, phygital will represent around 25 to 20% or maybe even less in terms of turnover. But the added value will be much greater.

We see less and less competition on the physical side and on the digital side, more and more competition is coming. So, we say to ourselves that we will stay in the phygital and that there is something for everyone. We position ourselves strongly for the transaction business and additionally as we move forward cross-selling value-added products like PMS, mutual funds, deposits and AIFs and a whole bunch of insurances and all that will mature on the advice product. This is how the funnel will be built and I have a feeling it will be very interesting when fixed income has crashed and participation increases. So, the two coming together, the expansion of the market is going to be quite sustained.

Of all the segments of your business, which also has the most traction?
All companies are led by capable CEOs. The success of the company depends on the tailwind and the competence of the CEOs. Some of the companies like I-banking, which was sort of extinct only three or four quarters ago, are coming back very strongly and in the fourth quarter and subsequent quarters we’re going to see an even bigger pull than private equity.

Thanks to the huge tailwind due to the expansion of the market, we are able to raise one of the largest fundraising rounds of around Rs 4,000 crore in a very short period of around six months. These things are going to have a dramatic impact next year in 2022-2023 when we see the landscape change. Of course, the brokerage itself will continue to move as it moves. We might be trying to gain market share, but some of the other businesses like online banking, private equity, and wealth management are now having a follow-on market expansion effect.

These are the businesses that will have a greater impact on the P&L, even if the core business engine is failing and will continue to do so.

A lot of competition is now developing in the area of ​​corporate asset management. Additionally, the PMS side of the asset management industry is coming back aggressively. How do you approach all the changes that are happening in the asset management industry?
On the passive side, we were among the first to launch our ETF business in 2008 and ran it for four to five years and then we thought we were way ahead in terms of ETFs and the market didn’t was not ready. But in the last two or three years, it has picked up nicely.

We are among the largest foreign ETFs to be distributed in India, led by Nasdaq and S&P 500. This activity will pick up and there is no performance issue with that, but in active management mutual funds placement and PML, performance is a big thing and it has a lot to do with which style is in favor at which time. We have had small challenges over the past two or three years. So what happens is that when our style is in favor, we get tons of money and there is no shortage of money. There’s more money than we can handle.

So it’s not about market share in any of the capital market businesses because the way the capital market is growing and the economy is growing at a nominal rate of 11-12% and l savings may increase to 12-13%, but the share of financial savings due to the fixed income crash on the equity side increases to 18-20%. There is enough and more for every gamer. The question is whether we are competent. We are therefore increasingly focusing on building skills rather than chasing market share.