Dear shareholder friends,
It gives me pleasure writing to you on the occasion of 19th anniversary
of our Company.
Here, I will briefly explain why I call our Company a double-engine
compounding machine. Along the way, I will touch upon a mega trend that we find ourselves
in, coupled with our preparedness and response.
First and foremost, we must realise that India, the country itself, is
a compounding machine. Since the turn of the century, India's nominal GDP has compounded
at the rate of 12%. There is a high probability that this growth rate will be sustained
across the foreseeable future.
The Indian stock market is also a compounding machine. A key metric
here is that since the turn of the century, India's market capitalisation has compounded
at the rate of 17%. Over the same period, the Nifty-50 index has compounded at the rate of
12%. More recently, partly triggered by Covid, SEBI permitted the digital onboarding of
customers. As an icing on the cake, interest rates have remained low.
All these factors have led to a mega trend - a perceptible shift in the
investment pattern of Indians. Increasingly, savings are moving out of bank deposits and
into the equity market. The indicators are staggering. Over the last four years, the
number of demat accounts has compounded at a mind-boggling 39% to hit 15 Crore as of March
2024. During the same period, monthly SIP (Systematic Investment Plan) flows into mutual
funds more than doubled from RS 8,000 Crore to Rs 20,000 Crore.
Will this mega trend sustain
There is enough reason to believe that it will. Over the last 25 years,
India's cumulative Gross Domestic Savings has grown to about USD 13 trillion. Going
forward, the next 25 years' cumulative savings could hit USD 100 trillion. Interestingly,
the equity penetration in India has been low - of the total household assets, equities
comprise less than 5%. Given India's young population, which typically possesses a higher
risk appetite, I expect the penetration of equities to rise significantly. This should
sustain the current mega equity retail trend.
The capital market is an integral component of the economy as it
channelises capital from suppliers to users. Equally important, it provides a much-needed
liquidity to suppliers. In the process, it creates gigantic wealth. India's market
capitalisation crossed USD 5 trillion, a milestone for any country. This is creating
multiple opportunities - in the areas of wealth management, asset management, private
wealth management, and investment banking, among others.
As one of India's leading capital market players, this mega trend is
music to our ears. Our key challenge is now to assess how prepared we are to ride this
trend, and our strategic response.
Here are some numbers that will convince you of our Company's
preparedness:
- 70 Lakh Our customer base:
- Total number of external wealth managers: 8,010 in 550+ cities,
covering ~98% of India's postal codes
- Assets under management & advice: RS3.8 Lakh Crore
- Equity research coverage: Over 250 companies
- People strength: 11,290
Over the last 25 years, India's cumulative Gross Domestic Savings has
grown to about USD 13 trillion. Going forward, the next 25 years' cumulative savings could
hit USD 100 trillion. Interestingly, the equity penetration in India has been low - of the
total household assets, equities comprise less than 5%. Given India's young population,
which typically possesses a higher risk appetite, I expect the penetration of equities to
rise significantly. This should sustain the current mega equity retail trend.
- Office infrastructure: 5,57,720 sq ft across key cities in India.
This preparedness has been complemented by a well thought- out
strategic response. Here, my pet term is 4-T: Towers (meaning physical infrastructure
ahead of growth), Technology, Talent and Training. For instance, we are literally
investing in Towers (read, consolidated office space) in key cities. We plan to build a
world- class training academy for our employees. We believe that all the 4-T's will
strengthen our strategic position as a leading phygital (physical + digital) player in the
Indian capital markets.
What is the bottom-line of all of thisRs We need to understand our
double-engine business model, where free cashflows from operating businesses are ploughed
back into our treasury. Our treasury book is 100% invested in equity and equity products -
all the time. Over last 10 years, operating profits compounded at 34%. Our treasury
investments delivered an IRR of 18%. The ongoing capital market boom is
favourable to both these engines.
At our Company, the reported Profit After Tax tends to be volatile on
account of marked-to-market gains or losses on our treasury investments. As a result, I
prefer to look at our net worth (i.e. book value), which has compounded at a robust 22%
over the last 10
years with an average RoE of 22%. This explains why our Company is a
double-engine compounding machine.
It is important to note that even as we stay focused on our business,
we have not lost sight of our corporate social responsibility (CSR). In addition to the
annual CSR outlays of our Company, the founders pledged 10% of their equity for social
causes. At Motilal Oswal, we believe that in the long run, what is good for society will
be good for our Company.
This journey, an exciting past, and an even more exciting future, would
not have been without all our stakeholders - our customers, our employees, our business
partners, and our shareholders.
I invite you to ride the magic of compounding with us.
Best wishes and warm regards,
Raamdeo Agrawal
Chairman