Investors needn't worry about market valuations and macro events, provided they have the right sectors and stocks. - MOTILAL OSWAL, CMD, MOTILAL OSWAL FINANCIAL SERVICES
Srividhya Sivakumar
Buy right and sit tight is what Mr Motilal Oswal , CMD, Motilal Oswal Financial Services, advises retail investors. In an interview with Business Line, he shared his views on market valuations and the broking industry.
Markets have run up significantly in recent times. What's your advice for investors who are waiting to invest in the market?
Well, markets certainly aren't as cheap as they were earlier but a lot of stocks and sectors are still available at reasonable valuations. I would advise investors to look for stocks that are available at less than market valuations. . Investors just need to make sure their stock selection is right. Buy right and sit tight, is what I always tell retail investors. They needn't worry about market valuations and all the macro events, provided they have the right sectors and stocks. That said, investors need to diversify and not put too much money into too few sectors. So as long as the stock selection is good, anytime is good.
Our research says that overall corporate profit growth will be at 24-25 per cent over the next two years. GDP, even taking a pessimistic view, indicates an 8.5 per cent growth. So if you look at the 2012 earnings, the overall market does appear quite reasonable.
Trading volumes haven't really favoured brokerages so far. Do you think that has now changed?
Yes, I am already seeing an uptick in it. If . A lot of retail activity has increased in small- and mid-caps. So there is a definite revival in demand from retail investors. Besides, given the kind of volumes and price movement prevailing now, my sense is that retail activity is here to stay. The market consolidation stage of the last 8-9 months is over and the good times have begun. Even the delivery turnover is going up.
How difficult has it been to operate in a no load regime? Do you think this could impede (your) growth in the MF industry?
The ‘no load' regime has definitely slowed us down. But I am hopeful, as history tells us that whenever something has been done in the interest of the customer, it has always been rewarding in the long run. It may be too early to say, but I think stock exchanges will grow into a big platform to reach out to investors.
They are the best way to distribute MFs, IPOs and equities as they are not only cost-effective and convenient, but transparent too. It just will take us all time to stabilise. Besides, the kind of savings it has brought to investors is huge.
Besides, at a time when debt returns adjusted for inflation are negative, equities will attract a huge amount of money. As an asset class, equities have delivered a 17 per cent compounded returns over the last 30 years. Now, which asset class can beat that!
Equities combined with technology and convenience will continue to remain attractive. I am, therefore, quite optimistic on both the MF and broking businesses.
Do you see a continuous inflow of liquidity into our markets?
Well, as I said earlier, we have significant worth of annual savings now. Interest rates aren't too high so, to that extent, there is money available in the market. In terms of global developments, while there are fears of double-dip recession, my sense is that as long India, as an economy, is doing well, money will come. And if doesn't, we have lot of local money.
What kind of industry consolidation do you see going forward?
If you look at consolidation in terms of market volumes, the top 25 brokers' turnover hasn't changed much in the last couple of years. But consolidation is happening along the lines of brokerage bearing business. That is, if we overlook the proprietary volume share (about 35 per cent), and look at only the brokerage bearing quality volume, consolidation is definitely happening.
In terms of M&A activity, we still haven't seen it take off in a big way though there were a couple of transactions in recent times.
Q. But option volumes continue to be high. Are you specifically aligning your business development initiatives along similar lines?
Well, yes the market mix has changed in favour of options, which sees a lot of proprietary volume. But they typically are low brokerage yielding services and we do not do that kind of low brokerage. We do business at our own terms and do not believe in cutting the price. We, however, have a very strong advisory desk to help clients who want to transact in derivatives.
Q. How has your company's product and service offerings changed after the 2008 meltdown?
Firstly, I think the whole process of profiling customers based on their trading activities has fallen in place. We now profile customers based on their risk appetite, trading activities and advice requirement. In all the whole process of customer segmentation has grown in importance.
Second, a whole lot of new features are now available in our online broking service. These services have helped investors feel empowered. There also have been innovations in terms of coming up with product ideas that investors need. Our mutual fund offering - M50, which is India's first fundamentally weighted ETF, is a case in point. Besides that we are working on a couple of new MF products.
At service level, we add value by send portfolio valuations on SMS. We send our clients recommendations based on the stocks they hold. We also provide them with sector-wise allocation using pie charts in their DP statement.
Q. What is your view of algorithmic trading? Do you think it is justified to say that it could make Indian markets vulnerable to sudden falls just like how it happened in the US sometime back?
I think it's a good and a big move. Algorithmic trading is done mostly by institutional traders and is a great tool to bring more efficiency in price discovery. Besides, market falls happen irrespective of algos. It can happen even if a trader manually punches in the orders.
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