`Biz building happens in slowdown`

Q&A : Motilal Oswal

Since the beginning of 2008, the stock market has taken a hit of more than 25 per cent. A subsequent fall in trading volumes has severely hit brokers whose incomes were climbing on the back of a bull run the past year. In a chat with Palak Shah, Motilal Oswal Financial Services (MOFSL) Chairman and Managing Director Motilal Oswal says he is unruffled by the turbulence.

How are you coping up with the current market slowdown? There are talks that you have shut down down some of your branches.

Revenues have been hit if you compare them on a quarterly basis. The earnings were exceptionally high during the last two quarters of 2007 as the benchmark indices rose more than 30 per cent during the period.

Given the swift rise in share prices, this slowdown was expected. But, according to our estimates, the broking business is still fairly positioned if one compares it with the earnings of the last three years.

The talks of shutting down some offices is not true. MOFSL has 800 franchisees and over 70 branches, so it is a normal strategy to merge two branches if they are not able to get the expected business. We do it all the time.

Has the current slowdown affected your expansion plans? You had collected Rs 267 crore last year through an initial public offer. How much have you utilised?

We have done significant expansion in the last six months and nearly Rs 200 crore of the IPO money has been utilised. MOFSL set up one of the country’s biggest dealing room in April at Malad in Mumbai. Over 400 dealers can be accommodated in the 26,000 sq.ft area. MOFSL has already applied for a licence for asset management business. There will also be an offshore fund and a Rs 150 crore real-estate private equity fund.

A propriety desk with a corpus of nearly Rs 200 crore is coming up shortly. We want to expand in the north and have chalked out plans to buy a couple of small brokerage houses and increase our base in retail business.

Major business building and expansion happens only during a market slowdown when property prices are low and skilled manpower is cheap.

Any loss provisions this quarter in your non-banking financial company? Has the margin funding business come to a standstill?

We just wrote down nearly Rs 4.5 crore of losses last quarter. This quarter there are none. The margin funding business has gone down significantly, but it has not come to a standstill. The loan book size is around Rs 300 crore.

When do you see the stock market sentiment improving?

There are a lot of expectations from the government now that the Left parties are out. Sentiments are likely to improve if there is some progress in pension and the banking sector reforms. However, second quarter results need to be watched as the real impact of global oil price rise and interest rate hikes would be apparent on the balance sheets.