Raamdeo Agrawal, Chairman & Co-founder, Motilal Oswal Group, says he doesn’t think Nifty is expensive at all. 20-21 times for the India story is not out of line. The economy should pick up as we go forward. Monsoon has been fierce and that will have a very good effect in the second half, in the festival season and hopefully the interest rates will also come down somewhat, at least 50 basis point in next six months. On corporate earnings, Motilal Oswal research department is saying that next year it will be at least 14-15% Nifty EPS. From Rs 1,000 EPS in 2024, it could be Rs 1,130.
Agrawal also says FIIs will be back. Maybe not in a big way, but they will be net-net positive going forward. Then there will be a lot more capital market activity in terms of I-Banking, wealth management and those sectors will rocket. It is a kind of revolution in capital market and it feel like what happened in IT in the late 1990s – 1997, 1998, 2000. It has changed the entire country. Capital market industry could be even bigger than that.
Markets are up. Profits are up. And congratulations, now you are a Rs 1,000-crore quarterly profit company! Raamdeo Agrawal: Yes, I am surprised by the result of our own company. I was indicated that it will be about this number, but when the actual number came out, which after the last minute adjustment in terms of processing and all, turned out to be Rs 1021 crore, we clapped. I said, please clap for this result.
This is the power of tailwind in the industry and our execution, both. So, operating profits are up 40-45%. Mark to market is also up by 40-50%, but that can be up and down. But what we have to focus on is the real first engine that is the operating profit, which is very robust. Quarter-on-quarter it is building up. It is 40% up. All the businesses are firing up. There is broking, asset management, private equity, wealth management, I-Banking which was absolutely out of action for many years.
So, for the last one, one-and-a-half years, even that engine is firing. We have 35 IPO mandates and I believe we are number one in QIPs in India. So, revenue buildup is very good. As the economy is progressing and this 7-8% growth is on, I am quite sure the capital markets will remain buoyant. Participation is increasing, retail participation. FIIs, which were sitting on the fence, I think they are also now finally saying event risk is gone, even budget is gone, now they have to finally decide whether they want to come into India or they want to go away from India. My sense is they will come to India. Maybe not in a big way, but they will be net-net positive going forward.
Then the activity shifts to a lot more capital market activity in terms of I-Banking, wealth management, so those things will rocket big time. A lot is happening in capital market, and it is a kind of revolution. I mean, when you pass through that phase, I am feeling like what happened in IT in the late 1990s – 1997, 1998, 2000. Then it started with a billion dollar export and now it is $250 billion export in 25 years. It has changed the entire country.
I think this is even bigger than that. So, inclusion of the entire retail market, well-guarded and extremely well-managed by SEBI and authorities out here, the digital infrastructure, is a story worth watching.
When you say this is bigger than IT, remember IT revolution lasted for a good 10 years before it peaked out in terms of the TMT bubble….Raamdeo Agrawal: And then, of course, it slows down.
So, where are we, if you have to do a parallel with IT? Is this still the beginning of what could be called as the financial inclusion revolution?Raamdeo Agrawal: It is just about two-three years right now. So, fortunately, it is linked to the size of the economy because this is savings pool getting transferred. The economy is growing year after year for the last 25 years. So, there is no reason why we will not going at 9-9.5% going forward. It could be a little higher, but let us presume as good, as bad of the past. So, the 9% growth is there. The power of compounding is that base changes. So, when the base changes from a trillion dollars to four trillion dollars, you are growing on $4 trillion. So, your savings are also growing.
Last year we had savings about $1.3 trillion in the entire economy. But the financial savings of the households are about 20% of the GDP. And of that, only 5-6% is the pure financial savings of the household savings. So, only 1% or 2% is going into the market. A 5% shift to the capital market is not entirely impossible. So, 10 years out, when my GDP is say $8 trillion, it will be 5% of that. So, instead of getting $100 billion, we might get $400 billion in a year, some Rs 30-35 lakh crores.
Right now, we are getting about Rs 8-9 lakh crores per annum. So that could go to about Rs 400-500 lakh crore. There is a possibility. Now it does not happen in a straight line. There will be some corrections, there will be some slowdown or things like that. This will rewrite the corporate story of India. Corporate infra build of the country, the GDP of the country, and hence the savings and then the investment. So, it has a huge tickle-down effect.
So, the size of the pot, like investors always say, is big. But the competition is also increasing because of technology, because of also what is happening in terms of the PE investors coming in. So, business will grow, but could yields come down? Raamdeo Agrawal: One has to see business by business. There are six-seven segments in capital market. Like exchanges, there is only one NSE and now BSE is coming up to compete. But there is nothing else. When we started in 1987, the daily turnover was Rs 200 crore and it used to be T plus 15 settlement days and it used to settle in T plus 21.
Today, it is more than Rs 400 lakh crore and it is T plus 1 settlement. So, what I am saying is, this is 2 lakh time growth of the market. Nothing has grown at this pace. And still it is growing at 50% even on this base. This is about the broking or transaction-based services.
Look at the AMCs as well. The total mutual fund is about Rs 60 lakh crore; bank deposit base is about Rs 200 lakh crores. So, that is barely 30% of deposits. It should be one-to-one. So, as we go forward, this pie is going to grow, the equity side at least, will keep growing at 25% component. So, this 40 lakh crores AUM, 10 years back was 4 lakh crore. Today it is Rs 40 lakh crores. Will it be Rs 400 lakh crore?
It can be, logically. Raamdeo Agrawal: Yes, so the top five or seven or maybe top ten AMCs have 70-80% market share. I am saying, yes, there is a competition. It is not that if somebody does not do broking with you or does not give you money to manage, there is no other option, so that is the beauty of it. We have very healthy competition and nobody is being challenged by anybody. It all depends on your competences. Because there is so much of customers, you are getting 4 million customers every month.
You have added 4 million customers? Raamdeo Agrawal: No, not me, the system.
: How many did you add? Raamdeo Agrawal: Ours is a little lower. We must be adding maybe 50,000-60,000 customers every month because we take only larger ticket customers because of our advisory and all. But yes, there also we are adding. But what I am saying is the system is going from 40 million Demat account to 162 million. Last month was 4.2 million. So, this is a nothing sort of revolution.
It is a multi-year trend.Raamdeo Agrawal: Multi-year trend. It is a decadal trend. I think you will see half a billion customers from 150 million in next eight-nine years half a billion customers and existing customers also putting more money, so this gives opportunity to the broking, it gives opportunity to asset management, it gives opportunity to wealth management, it gives opportunity to unlisted side. So, everything just flowers.
So, we have seen a rare combination of earning surprise and liquidity surge. It has been a rare combination for the market in the last couple of years. Earnings have been gradually upgraded and flows have surprised everybody. What would be the driving factor next two to three years now?Raamdeo Agrawal: It has to be earnings only because ultimately in the long run, it is a weighing machine. That is why it is very important to see this quarter is very challenged in terms of so far what earnings we are seeing because of maybe election time, government expenditure, maybe even the heat was too much.
I think the entire June quarter was a combination of lot of bad, negative macro factors that came together and on top of it, we had very intensely fought elections and the government is also not allowed to spend in the interim. So, now the new government has come in and they have to do 12 months’ expenditure in 9 months. So, we will see accelerated execution of projects.
The economy should pick up as we go forward. Monsoon has been fierce right now and that will have a very good effect at least in the second half, in the festival season and all and hopefully the interest rates also come down somewhat, at least 50 basis point in next six months. So, everything is pointing to pick up in the economy. But let us see how it goes because corporate earnings must come. Our research department is saying that next year it will be at least 14-15% Nifty EPS. From 1000 EPS in 2024, it is likely to be 1130, that is what they say.
But it is still not expensive. I mean even if let us say 1100. Raamdeo Agrawal: Yes, if that is so, then Nifty is not expensive at all. I do not think 20-21 times for the India story is out of line.