Seriously clueless

India, private equity and more ...

Thursday, April 20, 2006

Motilal Oswal

From pontificating on reservations in higher education, I am back to my more mundane day-job world to announce another India investment. Along with New Vernon Private Equity, Bessemer has invested in Motilal Oswal Financial Services, one of India's leading stockbroking firms serving both institutional and retail investors. Mr Motilal Oswal and Mr Raamdeo Agrawal founded the company in 1987. Multiple bull-and-bear markets later, Motilal Oswal is arguably the best 'Indian' stock broking house, competing effectively against India-operations/JVs of various global firms (including the bulge bracket ones). On the retail side, they have an extensive reach of over 500 branches/franchisees across India. On the institutional side, Motilal Oswal serves a wide range of global asset managers who invest in the Indian markets. As a regular reader of their equity research, I can personally vouch for its high quality! For a more unbiased opinion, in March 2006, AQ Research (a UK-based firm that analyses the accuracy of a broker’s research call) declared Motilal Oswal the best research house for Indian stocks. Beyond stock broking, Motilal Oswal offers commodity trading and wealth management services, and is setting up its investment banking operations.

In terms of the market, our thesis is that rising consumer incomes will translate into disproportionately higher allocation of these funds into equities. Right now, under 3% of India's retail assets are invested in stock markets. Cash, bank deposits, real estate and gold dominate the pie-chart on how Indians invest their wealth. As economies develop, this % rises to as high as 30-35% in the US. Further, the stock broking industry is highly fragmented and seeing a gradual consolidation. Motilal Oswal's growth has outpaced that of the industry and the company should continue to gain from this consolidation.

The main concern with the brokerage business is cyclicality. Trading volumes drop sharply during a downturn. When (notice that I havent said 'if') the Indian stockmarket enters the next bear phase, Motilal Oswal and its competitors will clearly be affected.

Then what? We wait! Ups-and-downs are a part of this game, and one of values of patient capital is to be able to support a company through a potential downmarket. The secular shift towards greater equity investment will continue and we expect growth across a cycle to be robust. Further, leading firms are better placed to weather a downturn and may even be able to accelerate industry consolidation by rolling up smaller firms that have been affected to a much larger extent.

For those who havent been to their website yet, check out the two rules on the top-left of the page!

Press coverage on the same can be found here, here and here.


At 7:40 PM, Blogger David said...

Are employer-sponsored retirement plans common in India? If so, do they tend to invest mostly in equities?

Is there any discussion of something analogous to the 401(K) plans in the US?

At 10:02 PM, Blogger Rakesh said...

interesting that you mentioned about bear market and said when (no if)...

i might be totally clueless (seriously) on Indian markets...but considering the mateoric rise of the Indian markets in the last few yrs and the talk of market being over priced and needs a correction and blah u have any thoughts on the impending bear market time frame?

At 11:36 AM, Anonymous Anonymous said...

I have heard motilal oswal was raided et al by the Income tax department?

At 11:41 PM, Anonymous Anonymous said... be raided by IT in India only means you hv ruffled a few feathers-nothing more and nothing less..

Hari Kasa

At 3:52 PM, Anonymous Anonymous said...

hmmm, maybe you guys should have done some background checks on these guys!

At 9:02 PM, Anonymous Anonymous said...

Hi! Anand,

Motilal Oswal's two rules are actually a copy of Warren Buffet's quote. Buffet made this statement a long while ago. Was not sure if you were aware of this.

At 5:23 AM, Anonymous Anonymous said...

Perfect timing for you guys to invest. Classic sign to call the "top" of the Indian equity market. A PE firm investing in an aggressive trading oriented firm.
Their research is useless and all the talk of being a value based research shop is simply talk

At 8:26 AM, Blogger Diogenes said...

The broking business is faast getting commoditized and Moti is no exception. I wouldn't buy that "high quality" research spin, no matter who votes how. I'm sure the people who play the game know how the ratings work.I'm also a regular reader of their research and I can assure you that it is no different from any other street research.For a realistic assesment of quality of sell side research in general please see the book "The Number".

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At 5:21 PM, Anonymous navneet said...

Motilal Oswal is truly the Best Broking house of India. Those who wrote in against of MO we should be sorry for them for they have not tasted the fruits and giving comments. I personally have met with many high rated broking houses in India and with MO too and I am sure that the diffrence in quality of service should be the measure and dedication towards clients money should be main motive.

At 8:17 PM, Anonymous Anonymous said...

big time frauds - just not trustworthy. They are just after brokerage money and for that they will stoop to any level.I have had really bad experiences with them.

At 1:51 PM, Anonymous Anonymous said...

They go wrong recommending shares above 90% of times be it intra-day,short-term,long-term proof there in the journals and personal dealings with them they call themselves research analyst
they are not broker house they are slaughter house to the investor
Investors can survive crashes or volatility but not their clutches

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Motilal Oswal expects NTPC to post net profit of Rs88.4 bn in FY11 (down 5% y-o-y) and Rs102.8 bn in FY12 (up 16% y-o-y). The stock trades at a PER of 17.8 times FY11E and 15.3 times FY12E and P/BV of 2.3 times FY11E and 2.2 times FY12E. Reiterate Buy with a target price of Rs240, an upside of 26%

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