Motilal Oswal Financial Services CMD Motilal Oswal spoke to Vishal Chhabria and Jitendra Kumar Gupta on the markets and the firm’s plans to grow. Edited excerpts:
What is your take on the markets?
The markets will consolidate at these levels. There are global and domestic headwinds, including interest rates, inflation, petrol price hike and deficit. The flow of FII money has slowed down and the earnings growth, too, has been muted. In the June quarter, the Sensex earnings growth was about 10 per cent. I don’t think we will close the financial year with earnings growth of more than 14-15 per cent. The only silver lining could be the government action. If it becomes proactive and takes some decisive steps on issues such as public sector divestment or FDI in the retail sector, markets could react positively. So, I think we are all looking at Delhi.
Could there be an appetite for such issues given the poor market conditions?
The appetite is still there for quality public sector undertakings (PSUs). If the government is really aggressive, one issue alone could fetch it Rs 40,000-50,000 crore. Stake sale in public sector banks is a good example, both in terms of quantum that can be raised and investor appetite. The divestment will not only help it to discover the true values of companies, but performance will also improve after the listing. HDFC Bank and ICICI Bank have improved their performance in a big way as a result of competition. The only unfortunate bit is that it is unable to do it in the Air India case. Had it been a separate corporation, decision making would have been different. And, my sense is that this Rs 40,000-crore target is not large, the issue is one of clarity on the road map. It does not matter if the index is 16,000-18,000 for PSU divestment. It is all about how decisive and time bound your action plan is.
Which sectors and themes could investors look to at this point in time?
We think cement, two-wheelers, fast moving consumer goods, pharma and private banks are sectors should do well.
Do global uncertainties worry you?
If smaller countries like Greece can create so many problems, what will happen if larger European economies also fall prey to the debt problem. And, if something goes wrong in the US — rating is already down, there could be a bigger crisis. We do not know how big it could be, how fast it could approach and the kind of repercussion that it could have. Some of these countries are our large trading partners. It depends on how efficiently these countries manage these crises.
What are the most promising areas within your basket of services?
I think one will have to go through the learning curve in each of the businesses and all of these have started making some money. So, we think growth in new businessess will be faster than the broking business. Except insurance, we are present in all segments. We want our focus to remain in the existing units rather than add more and more businesses. We have already done a few initial public offerings, mergers and acquisitions and private equity deals. Today, revenues are Rs 40-50 crore a year. We can only go up from here. We think investment banking and private equity will give us growth, as there is a huge appetite among corporates to raise funds and to restructure. Among others, the wealth business needs more time, whereas in the mutual funds business, we are trying out new strategies.
Are you looking at any kind of acquisition or tie-up in the new segments?
We could explore tie-ups with global firms on asset management or investment banking. We are getting offers, but we are just exploring them for strategic value. We do not want money. We are looking at a minority partner. We see a lot of interest among foreign players who want to set up shop in India.
But why is it that in the last five years, your revenues and profits have doubled and return on equity has fallen?
The way to look at it is that after 2008, the market has not grown. It takes time to grow business. Broking has been a 25-year business, while others are new and at a nascent stage. I think we need one full cycle for the business to leap to the next level. There are two issues: the market has not gone anywhere in the last few years and we have put in at least Rs 300 crore in building infrastructure for the office space, which will give us growth for the next 20 years.