Motilal Oswal Financial Services Ltd Management Discussions

Global economy overview

Global economic growth declined from 3.5% in 2022 to an estimated 3.1% in 2023. A disproportionate share of global growth in 2023-24 is expected to come from Asia, despite the weaker-than-expected recovery in China, sustained weakness in USA, higher energy costs in Europe, weak global consumer sentiment on account of the Ukraine-Russia war, and the Red Sea crisis resulting in higher logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is expected to slow from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024 as policy tightening takes effect. Emerging market and developing economies are projected to report a modest growth decline from 4.1 percent in 2022 to 4.0 percent in 2023 and 2024. Global inflation is expected to decline steadily from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases. The US Federal Reserve approved a much-anticipated interest rate hike that took the benchmark borrowing costs to their highest in more than 22 years.

Global trade in goods was expected to have declined nearly US$2 trillion in 2023; trade in services was expected to have expanded US$500 billion. The cost of Brent crude oil averaged $83 per barrel in 2023, down from $101per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a high note, with major global equity benchmarks delivering doubledigit returns. This outperformance was led by a decline in global inflation, slide in the dollar index, declining crude and higher expectations of rate cuts by the US Fed and other Central banks.

Regional growth (%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

(Source: UNCTAD, IMF)

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022

China: GDP growth was 5.2% in 2023 compared to 3% in 2022

United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022

Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022

Germany: GDP contracted by 0.3% in 2023 compared to a growth of 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook

Asia is expected to continue to account for the bulk of global growth in 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, with growth around previous levels for the next two years (Source: World Bank).

Indian economy overview

The Indian economy was estimated to grow 7.8 per cent in the 2023-24 fiscal against 7.2 per cent in 202223 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at RS82.66 against the US dollar on the first trading day of 2023 and on 27 December was RS83.35 versus the greenback, a depreciation of 0.8%.

In FY 2023-24, the CPI inflation averaged 5.4 percent with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5 percent, a sharp decline from 6.2 percent in FY 23. The softening of global commodity prices led to a moderation in core inflation.

The nations foreign exchange reserves achieved a historic milestone, reaching $645.6 billion. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in RS2 FY24. UPI transactions in India posted a record 56 per cent rise in volume and a 43 per cent rise in value in FY24.

Growth of the Indian economy

	FY23		FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8
Real GDP growth (%)	8.2	8.1	8.4	8.2

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

The FY 25 growth in the economy was the highest since FY17, excluding the 9.7% post-Covid rebound in gross domestic product (GDP) in FY22 from the 5.8% contraction in FY21.

Indias monsoon for 2023 hit a five-year low. August was the driest month in a century. From June to September, the country received only 94 per cent of its long-term average rainfall. Despite this reality, wheat production was expected to touch a record 114 million tonnes in the 2023-24 crop year on account of higher coverage. Rice production was expected to decline to reacRs 106 million metric tons (mmt) compared witRs 132 million metric tonnes in the previous year. Total kharif pulses production for 2023-24 was estimated at 71.18 lakh metric tonnes, lower than the previous year due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output was estimated to grow 6.5 per cent in 2023-24 compared to 1.3 per cent in 2022-23. The Indian mining sector growth was estimated at 8.1 per cent in 2023-24 compared to 4.1 per cent in 2022-23. Financial services, real estate and professional services were estimated to record a growth of 8.9 per cent in 2023-24 compared to 7.1 per cent in FY 2022-23.

Real GDP or GDP at constant prices in 2023-24 was estimated at RS171.79 lakh crore as against the provisional GDP estimate of 2022-23 of RS160.06 lakh crore (released on 31st May 2023). Growth in real GDP during 2023-24 was estimated at 7.3 per cent compared to 7.2 per cent in 2022-23. Nominal GDP or GDP at current prices in 2023-24 was estimated at RS296.58 lakh crore against the provisional 202223 GDP estimate of RS272.41 lakh crore. The gross nonperforming asset ratio for scheduled commercial banks dropped to 3.2 per cent as of September 2023, following a decline from 3.9 per cent at the end of March 2023.

Indias exports of goods and services were expected touch $900 billion in 2023-24 compared to $770 billion in the previous year despite global headwinds. Merchandise exports were expected to expand between $495 billion and $500 billion, while services exports were expected to touch $400 billion during the year. Indias net direct tax collection increased 19 per cent to RS14.71 lakh crore by January 2024. The gross collection was 24.58 per cent higher than the gross collection for the corresponding period of the previous year. Gross GST collection of RS20.1 lakh crore in FY24 represented an 11.7% increase; average monthly collection was RS1,68,000 crore, surpassing the previous years average of RS1,50,000 crore.

The agriculture sector was expected to see a growth of 1.8 per cent in 2023-24, lower than the 4 per cent expansion recorded in 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3 per cent in 2023-24, a contraction from 14 per cent in 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9 per cent, despite global supply chain disruptions and rising ownership costs.

The construction sector was expected to grow 10.7 per cent year-on-year from 10 per cent in 2023-23. Public administration, defence and other services were estimated to grow by 7.7 per cent in 2023-24 compared to 7.2 per cent in FY2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9 per cent, down from 7 per cent in 2022-23.

India reached a pivotal phase in its S-curve, characterized by acceleration in urbanization, industrialization, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of US$3.6 trillion and nominal per capita income of INR 123,945 in 2023-24.

Indias Nifty 50 index grew 30 percent in FY2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalization of US$4 trillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018.

Outlook

India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4 trillion in 2024-25.

Union Budget FY 2024-25

The Interim Union Budget 2024-25 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at RS6,21,541 crore, accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

In recent years, the Indian economy has demonstrated resilience, consistently outperforming its global counterparts in terms of growth despite prevailing global instabilities. This sustained growth trajectory can be attributed to various factors, including its demographic advantage, robust domestic demand, progressive economic reforms, advancements in manufacturing and infrastructure, as well as a concerted push towards technological innovation and digitalization.

Notably, Indias economic prowess is underscored by its ascent in global rankings. For 2023, India secured the fifth position in terms of nominal GDP, surpassing the United Kingdom in 2023. Furthermore, in purchasing power parity (ppp) terms, India stands as the worlds third-largest economy, following only China and the United States.

In the domestic economic landscape, key indicators reflect a favourable trend. Retail inflation, gauged by the Consumer Price Index, moderated to 4.9% in March 2024 from 5.7% in December 2023, with core inflation also experiencing a decline to 3.2% in March 2024 from 3.8% in December 2023. This downward trajectory can be attributed to various factors, including reduced fuel inflation supported by government initiatives to mitigate cooking gas prices and a softening in global raw material prices.

The Reserve Bank of India (RBI) responded proactively to the global uncertainties and economic dynamics by implementing a series of measured adjustments to monetary policy. Beginning in Q1 FY 2023, the RBI increased the repo rate by 90 basis points, with subsequent incremental increases in subsequent quarters. By Q3 FY 2024, the repo rate had reached 6.50%, marking a notable rise of 250 basis points from Q4 FY 2022. However, the repo rate remained unchanged in Q4 FY 2024 at 6.5% since Q4 of FY 2023.

Looking ahead, the IMFs economic outlook update provided an optimistic outlook for Indias economic growth trajectory. The IMF revised its growth estimate for fiscal 2024 to 7.8%, up from the previous estimate of 6.3% in October 2023, citing the momentum generated by resilient domestic demand and the rising working- age population. Moreover, the growth forecast for fiscal 2025 also saw an upward revision to 6.8%.

In contrast, global economic growth is projected to decelerate, with the IMF forecasting a decline from an estimated 3.5% in 2022 to 3.1% in both 2023 and 2024. While the forecast for 2023 is marginally higher than the previous estimate, it remains below the historical average, emphasizing the relative strength of Indias economic performance amid global challenges.

(Source: IMF)

The Indian equity market

Industry overview

During the fiscal year 2023-24, the S&P BSE Sensex index touched multiple new peaks, with the market capitalization of companies listed on the BSE exceeding US$4 trillion. In FY24, the BSE Sensex posted its second-largest five-year rise of 24.85% (largest was 68.01% in a pandemic-recovering FY21). Since 2016, the Sensex has shown a consistent upward trajectory. Following the markets low point during the COVID-19 pandemic, the index had surged by 187% until the close of the last financial year.

The fiscal year 2023-24 concluded on a high note for benchmark equity indices, Sensex and Nifty, driven by significant investments in sectors such as power, automotive and banking, buoyed by favourable global market conditions. Throughout the fiscal year, the BSE benchmark index climbed by 14,659.83 points or 24.85%, while the Nifty increased by 4,967.15 points or 28.61%.

In the fiscal year 2023-24, the NSE Midcap 100 and NSE Small Cap 250 indices experienced remarkable gains of approximately 60.06% and 63.07%, respectively. Corporate earnings in India improved, supported by declining commodity prices that have boosted profitability and margins across various sectors. This positive trend is anticipated to persist, supported by domestic demand, positive macroeconomic factors and a revival in private capital investments. These elements are expected to propel the Indian equity markets.

(Source: Mint, Business Standard)

India fourth largest global equity market

World	Market capitalization (US$ trillion)
US	56.49
China	8.84
Japan	6.30
India	5.20
Hong Kong	5.17

Indias domestic equity markets regained their position as the worlds fourth-largest, surpassing Hong Kong in June 2024. Following a notable recovery from lows observed on election result day, Indias market capitalization surged 10% to US$5.2 trillion (approximately RS435 trillion for BSE-listed companies). In contrast, Hong Kongs market capitalization was US$5.17 trillion, reflecting a 5.4% decline from its peak of $5.47 trillion. (Source: Business Standard)

India experienced a robust increase in demat accounts, reflecting a growing interest in retail equity participation. The total demat accounts surged at a compounded annual growth rate (CAGR) of approximately 33.3% from fiscal year 2019 to fiscal year 2024, rising from 3.59 crore accounts to 15.14 crore accounts. This growth can be attributed to increased awareness among retail investors, increased accessibility to trading platforms facilitated by technological advancements, and a reduction in brokerage costs.

The active client base on the National Stock Exchange (NSE) expanded significantly, registering a CAGR of 37.8% from 0.8 crore in March 2019 to approximately 4.08 crore in March 2024. This trend underscores the growing influence and participation of retail investors in the Indian equities market, indicative of a democratization of investment opportunities.

Business streams and outlook

Motilal Oswal Financial Services Limited (MOFSL) is a diversified financial services company with focus on managing clients wealth. MOFSL operates in business segments like capital markets, assets & private wealth management and affordable housing finance. In each of the businesses, MOFSL offers a unique value proposition to its customers creates its niche in each of the business segments and commands a premium position over peers. MOFSL carries its lending business by running a loan-against-shares book under Motilal Oswal Finvest Limited and retail mortgage-backed lending in the affordable housing segment under Motilal Oswal Home Finance Limited.

As a measure of credibility, the borrowings of Motilal Oswal Financial Services Limited enjoyed the following ratings:

Borrowing	Rating/Outlook
	CRISIL	ICRA	India Ratings
Short Term
Commercial Paper	A1+	A1+	A1+
Long Term
Market Linked Debentures	-	PP-MLD AA (Stable)	PP-MLD AA (Stable)
Non-Convertible Debentures	AA (Stable)	AA (Stable)	AA (Stable)
Long-term Fund-based/ Non-fund Based Bank Lines	-	AA (Stable)	AA (Stable)

The borrowings of Motilal Oswal Finvest Limited enjoyed the following ratings:

Borrowing	Rating/Outlook
	CRISIL	ICRA	India Ratings
Short Term
Commercial Paper	A1+	-	A1+
Long Term
Market Linked Debentures	PPMLD AA (Stable)	PP-MLD AA (Stable)	PP-MLD AA (Stable)
Non-Convertible Debentures	AA (Stable)	AA (Stable)	AA (Stable)

Borrowings of Motilal Oswal Home Finance Limited enjoy the following credit ratings-

Borrowing	Rating/Outlook
	CRISIL	ICRA	India Ratings
Short Term
Commercial Paper	A1+	A1+	-
Long Term
Market Linked Debentures	PPMLD AA (Stable)	-	-
Non-Convertible Debentures	AA (Stable)	AA (Stable)	AA (Stable)
Bank Borrowings	AA (Stable)	-	AA (Stable)

Borrowings of Motilal Oswal Wealth Limited enjoy the following credit ratings-

Borrowing	Rating/Outlook
	CRISIL	ICRA	India Ratings
Short Term
Commercial Paper	A1+	A1+	A1+

Capital Market Segment

In FY2024, India saw a significant surge in equity market participation, marked by the establishment of 3.7 crore new demat accounts, up from 2.5 crore in FY23. This growth was driven by bullish market conditions and increased activity in the Initial Public Offering (IPO) markets. CDSL, Indias largest depository, surpassed the 11-crore mark in terms of demat clients, contributing to a cumulative total of 15.14 crores demat accounts as of March 31st, 2024, reflecting a remarkable year-on- year growth rate of 32%.

Increase in demat accounts

Throughout the fiscal year, the Securities and Exchange Board of India (SEBI) introduced several new regulations and initiatives aimed at enhancing market penetration and growth. These initiatives included measures such as Application Supported by Blocked Amount (ASBA), a shortened trade settlement cycle, and extensive investor education campaigns. These regulatory efforts played a pivotal role in encouraging retail investors to actively engage across various product segments, thereby enriching the vibrancy and inclusivity of the Indian capital market ecosystem.

The fiscal year 2023-24 witnessed robust transactional activities in IPOs, Qualified Institutional Placements (QIPs), and block deals, with total equity fundraising reaching RS1.86 lakh crore, marking a substantial 142% increase from FY23. The IPO market specifically experienced a resurgence, with 75 main board offerings raising a record RS61,915 crore, highlighting robust investor confidence and participation.

This resurgence followed a comparatively subdued performance in FY2023 due to market volatility and moderate listing outcomes. Notable IPO listings in FY2024 included Mankind Pharma (Rs4,326 crore), Tata Technologies (Rs3,043 crore), and JSW Infrastructure (Rs2,800 crore), underscoring investor confidence and appetite for new offerings. Retail investor participation also surged, with the average number of applications rising to 13.2 lakhs compared to 5.6 lakhs in FY23. Tata Technologies received the highest number of retail applications (52.11 lakh), followed by DOMS Industries (41.30 lakh) and INOX India (37.34 lakh).

DII net inflows into equities

In FY2024, Indian equities attracted substantial net inflows from both Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). FIIs contributed RS2.1 lakh crore, demonstrating robust foreign investor interest in Indias capital markets. Simultaneously, DIIs recorded inflows of RS2.1 lakh crore during the same period, indicating strong domestic investor participation and confidence in the markets growth prospects. These inflows underscored the attractiveness of Indian equities amidst favorable economic conditions and supportive regulatory frameworks, further enhancing the liquidity and depth of the market.

In the broader context, Indias capital market sector is buoyed by a burgeoning economy driving increased corporate activities like mergers, acquisitions, and capital market transactions. The expansion of capital markets, including IPOs and bond issuances, presents significant opportunities for underwriting and advisory services. Rapid digitalization and financial inclusion initiatives are enhancing retail investor participation, while regulatory reforms are bolstering transparency and investor confidence. Strategic alliances with global counterparts and innovative fintech solutions are further propelling growth in the Indian investment banking sector, making it adaptive to evolving market dynamics.

Our Capital Market Segment

In FY2024, the companys client base expanded significantly, surpassing 42 lakhs with a DP AUM of RS1.46 lakh crore and growing by 20% YoY. This growth was bolstered by the addition of 6.2 lakh new clients, facilitated by strategic acquisitions of small regional brokers transformed into external wealth managers which expanded the companys footprint into new geographies.

Research and advisory represent the foundation of the companys services, catering to diverse client segments including mass affluent and high net worth individuals with net worth up to RS25 crore. The company prioritized enhancing customer experience through digital initiatives and dedicated advisory desks tailored for mass affluent and HNI clients. The launch of the RISE Super App centralized financial services, enabling seamless investment management across various products such as mutual funds, insurance, and US stocks.

As of March 2024, the companys distribution Assets Under Management (aum) reached RS23,720 crore, reflecting a robust 35% YoY growth. With a substantial client base, the company continues to leverage opportunities for cross-selling financial products and scaling its business operation

In our institutional broking division, the company offers a comprehensive suite of services in cash and derivatives to both domestic and foreign institutions. Over the past year, the company expanded its institutional client base, securing empanelments and establishing relationships with more than 850 institutions.

The companys commitment to excellence and client satisfaction was recognized through rankings. The company is proud to have achieved the #1 position in the Corporate Access Team and Execution Team, as well as #2 in the Domestic Brokerage for Sale & Best Brokerage Transformation category in the prestigious Asia Money Poll 2023.

The company continued to focus on research offerings, corporate access outreach, and sales; trading capabilities strengthened the competitive positioning. The research product portfolio encompassed an analysis of over 250 companies across more than 21 sectors, providing valuable insights to clients. In the corporate access domain, the company excelled in executing successful events such as the Annual Global Investor Conference and unique events, facilitating interactions between investors and corporate leaders.

During the year, the investment banking division excelled with the completion of several deals, including notable IPOs like Happy Forgings Limited, Cello World Limited, Updater Services Limited, and IKIO Lightning Limited. The divisions success was driven by sector- specific expertise, particularly in BFSI, Auto, Consumer, Healthcare, and Industrials. By focusing on these key sectors, the company delivers tailored solutions that meet the unique needs of its clients, positioning itself for sustained growth and market leadership.

Looking ahead, the company maintains a robust pipeline of transactions in capital markets and advisory services, leveraging proactive engagement and strong industry relationships to capitalize on emerging opportunities. This strategic approach underscores the companys readiness to navigate evolving market dynamics and drive continued success in the competitive landscape of investment banking and financial services.

Asset and private wealth management Segment

India has experienced a significant rise of household participation in equities, driven by increased awareness, expanded financial inclusion efforts, improved banking access, and advancements in nonbank distribution technologies. This surge has been accompanied by a growing preference for equity funds, bolstered by heightened investor engagement and educational initiatives. Systematic Investment Plans (sips) have also gained popularity among nontraditional investing households.

In FY2024, the mutual fund industrys assets under management (aum) surged to RS53.4 lakh crore, marking a substantial 35% year-over-year growth. The equity mutual fund segment (excluding arbitrage) accounted for RS29.2 lakh crore of the total AUM, representinga notable51%year-over-year increaseand contributing 55% to the overall AUM. Robust net inflows of RS2.4 lakh crore into the equity category in FY2024 underscored strong investor confidence, reflecting a 46% year-over-year growth. SIP registrations also saw a significant uptick, reaching 4.2 crores during the year, up from 2.5 crores previously. March 2024 witnessed a record-high monthly SIP contribution of RS19,271 crore, with cumulative flows totaling RS1,99,219 crore in FY2024, surpassing the previous fiscal year.

Indian open ended mutual fund assets log highest growth in past 5, 10 and 15 years versus global peers

As per data disclosed by the International Investment Funds Association, as of March 2024, India has seen the highest growth in its assets under management in the last 5 years, 10 years and 15 years.

Worldwide regulated open-end funds: Total net assets excluding funds of funds

Country	5 years	T10 years	15 years
Brazil	13%	14%	15%
China	14%	22%	19%
Germany	5%	6%	7%
India	20%	24%	20%
Japan	11%	11%	11%
South Africa	8%	9%	12%
United Kingdom	4%	7%	11%
United States	9%	8%	9%

(Source: International Investment Funds Association; CRISIL MI&A Research Data as of March 2024)

Turning to private equity (pe), FY2024 concluded with Indias GDP growing by 8.2%, signaling economic resilience despite a decline in deal activity. Over 1,500 transactions totaling $53 billion represented a 23% decrease in volume and a significant 59% decrease in value from the previous year. Domestically, deal dominance persisted amidst cautious investor sentiment and global funding constraints. PE deal volumes decreased, but average deal sizes increased compared to 2022. Investments totaled $27 billion across 1,045 deals, down from $36 billion across 1,531 deals in 2022. Key sectors included pharmaceuticals, biotechnology, and startups, with notable transactions like Temasek Holdings $2 billion investment in Manipal Health. Bengaluru led in deal volume with 296 transactions, while Mumbai led in deal value, with NCR and Bengaluru jointly accounting for 74% of total deal values.

In wealth management, Indias market is projected to reach US$539.90 billion in AUM by 2024. The country saw a 6.1% annual increase in ultra-high-net-worth individuals (UHNWIs) in 2023, outpacing the global growth rate of 4.2% to reach 626,619 individuals. India is expected to lead globally with a 50.1% growth in UHNWIs from 2023 to 2028, driven by urbanization, regulatory reforms, technological advancements, and demographic shifts. The UHNI segment, with average household financial assets exceeding US$30 million, is projected to grow at an 8.5% CAGR from 2022 to 2027, while the HNI segment, with assets surpassing US$1 million, is expected to grow at around 15% CAGR over the same period. As of FY23, Indias gross financial household savings totaled approximately RS280 trillion, with bank deposits accounting for 42% of this amount.

Looking ahead, the asset and private wealth management sector presents significant opportunities, with McKinsey estimates suggesting a doubling of UHNI financial assets over the next five years.

Currently, professionally managed wealth in India constitutes only 15-20% of total wealth, indicating substantial growth potential as affluent individuals increasingly seek professional financial services and advice to enhance their wealth management strategies (Source: Knight Frank Wealth Report) Mckinsey and Company.

Our Asset & Private Wealth Management segment

Motilal Oswal Asset Management (MOAMC) operates MF, PMS and AIF in the public equities space. MOAMC has crafted its niche with the majority of AUM in equities. Total AUM stood at RS71,810 crore as of March 31, 2024. Our mutual fund AUM stood at RS48,156 crore, PMS AUM stood at RS12,132 crore and AIF AUM stood at RS10,599 crore. The company has a diverse passive product basket with a variety of categories to choose from- Indian equities, International Equities, Factors, Sectors, Commodities, Multi Asset and Debt. During FY2024, we launched 5 passive mutual funds and 2 active mutual funds. Our presence in a passive category will help us to onboard clients from the bottom of the pyramid, who are typically new to the equity asset class or have a lower risk appetite.

The company added around 10.0 lakh SIPs in FY2024. It achieved an all-time high inflow from SIP during the year of RS2,920 crore. We saw a turnaround in the performance turnaround in the performance of the companys active MF schemes, which in turn led to an improvement in gross sales and decline in redemptions. The company remains committed to its Quality, Growth, Longevity and Price (QGLP) philosophy and will continue to improvise. Further, the change in the investment process from focusing on the highest returns to focusing on consistency started yielding results.

On a blended basis, the companys net yield stood at 73 bps in FY2024. Alternates contributed about ~32% of total AMC AUM, one of the highest in the industry. As of March 2024, 54% of the non-MF AUM was performance-fee-linked. The company aims to push more performance-linked AUM in PMS and AIF, potentially strengthening net yields. The company invested in branding and advertising and is expected to reap benefits of brand recall.

Alternatives share in MOAMC

In private equity arm we manage three growth capital funds and four real estate funds, leveraging the QGLP philosophy. The growth funds focused on themes that could benefit from structural changes like domestic consumption, domestic savings, infrastructure, etc. PE funds were successful in gaining investor confidence with stellar returns.

IIBEF II has committed 100% across 11 investments so far after raising commitments. The fund has fully exited from 3 investments and partially exited from 2 investments and returned back to the investors 140% of the corpus. IBEF III was launched in FY2018, which, after exhausting its green-shoe option, stands fully raised at ~RS2,300 crore. IBEF III has fully committed across 11 investments. Our 4th growth fund, IBEF-IV, with a target size of RS4,500 crore, was launched in FY2022. The fund witnessed overwhelming response from investors as we were able to raise the full amount within a year of launch. The fund has invested around 66% across 9 companies.

The encouraging performance is not limited to growth funds but also real estate funds. IREF I has fully exited from all 7 investments, translating into ~118% capital returned to investors. IREF II is fully deployed across 14 investments. The Fund has secured 13 complete exits and has returned money equaling ~153% of the Fund corpus back to the investors. IREF III has made 26 investments including reinvestments. The Fund has secured 18 full exits and has returned money equaling ~124% of the corpus. IREF IV has deployed RS2,133 crore across 37 investments including reinvestments. The Fund has secured 21 full exits and has returned money equaling ~66% of the corpus. IREF V, with a fund size of RS1,210 crore, has deployed RS985 crore across 15 investments. IREF VI was launched during the year, with a fund size of RS2,000 crore and has received its first close of RS1,272 cr.

In private wealth management, AUM reach alltime high of ~RS1.24 lakh crore as of March 31, 2024, marking a 72% year-over-year growth. The company aims to scale up this business, enhancing Ultra High Net Worth Individual (uhni) offerings and advisory

capabilities. With a diversified product portfolio across asset classes and an open architecture model, the company has expanded its client base to 11,877 families by March 2024, reflecting a 30% year-overyear increase. Approximately 81% of the product mix is in equity products, contributing to higher yields.

Housing finance

Indias housing finance market is expected to grow at a compound annual growth rate of 24.1% from 2024 to 2033. The credit outstanding to the housing finance sector surged by nearly RS10 lakh cr. over the past two fiscal years, reaching a record RS27.23 lakh cr. in March 2024. This includes credit to the priority sector housing. In March 2024, the credit outstanding stood at RS27,22,720 cr. compared to RS19,88,532 cr. in March 2023 and RS17,26,697 cr. in March 2022.

Government schemes like Pradhan Mantri Awas Yojana (PMAY) fuel housing finance demand by offering subsidies and incentives, boosting loan uptake and fostering market growth, particularly among economically weaker sections. Key trends driving market dynamism and evolution include the shift towards digitalization, the expansion of affordable housing finance, the increasing demand for sustainable and green housing solutions and the emergence of niche financing options tailored to specific customer segments. (Source: Business Standard, Customs Market and Insights,)

The affordable housing finance business is poised for significant growth, bolstered by several favourable factors that strengthen its competitive position and growth prospects. Notably, the customer profile characterized by informal income and low Ability to Service (ATS), combined with the operation-intensive nature of the business, presents a relatively lower competitive landscape for Affordable Housing Finance Companies (AHFCs). Over the past five years, AHFCs have demonstrated impressive Annualized Assets Under Management (aum) Compound Annual Growth Rates (CAGR) ranging from 28% to 40%, accompanied by Return on Assets (RoA) exceeding 3.5% and low credit costs averaging between 0.2% to 0.5% over the same period.

Government initiatives such as the Urban Infrastructure Development Fund, Alternative Investment Fund, Pradhan Mantri Awas Yojana (Urban), Pradhan Mantri Awas Yojana (Gramin), and tax moderation have played instrumental roles in fueling the growth of Affordable Housing Finance Companies.

The loan book of the affordable housing segment reached RS1,04,000 crore, marking a robust year-on- year growth of 26%. The share of AHFCs in the overall housing finance industry remained significant at 13%, following the redistribution of market share within the Housing Finance Companies (HFCs) due to HDFC Limiteds merger with HDFC Bank. Previously, AHFCs held a share of approximately 6-7% of the overall housing finance market. (Source: ICRA Report)

Our housing finance business

Motilal Oswal Home Finance Ltd. (MOHFL) remains dedicated to facilitating home ownership for individuals and families through a range of loan products tailored to diverse needs. We provide financing for home purchase, construction, extension, repair, and renovation, catering to various segments including those with unconventional income sources.

The companys collaboration with the National Housing Bank under the Pradhan Mantri Awas Yojana for the Credit Linked Subsidy Scheme enabled it to assist economically weaker sections in accessing housing subsidies.

Expanding the footprint, the company opened two branches during the year, bringing the total to 110 standalone branches across 12 States, focusing on Maharashtra, Gujarat, Madhya Pradesh, Tamil Nadu, Rajasthan, Karnataka, Andhra Pradesh, Haryana, Chhattisgarh, Telangana, Delhi, and Uttar Pradesh. The sales team, comprising over 1,200 employees, and a network of 6,000+ channel partners, played a pivotal role in driving business growth and customer satisfaction.

In FY2024, the company reported a profit after tax of RS132 crore, marking a significant milestone with disbursements crossing the RS1,000 crore mark. Our loan book grew by 6% YoY to reach RS4,048 crore, driven by improved RM hiring and effective delinquency management. Our return on assets (ROA) stood at 3.2%.

Despite increasing interest pressure, the company maintained a healthy spread and net interest margin (nim) at 5.9% and 7.6% respectively, demonstrating our ability to manage margins effectively. Looking ahead, the company aimed for linear growth in assets under management (aum) and enhancements in profitability, return on assets and return on equity.

Treasury investments

In line with the long-term strategy to grow RoE sustainably, MOFSL Group made a strategic allocation of capital to long-term RoE-enhancing opportunities like MOHFL, and sponsored commitments to our mutual fund and private equity funds. As of March 31, 2024, the total quoted equity investments stood at RS4,206 crore and total investments (including alternate investments) stood at RS6,113 crore.

Key financial ratios

The consolidated ROE during 2023-24 stood at 35%. EBITDA and profit before tax margins stood at 50% and 43% respectively in 2023-24. Debt to Equity ratio stood at 1.6x.

Financial performance for FY 2023-24

Particulars (INR Cr)	Year ended 31st March, 2024	Year ended 31st March,2023
Total income	7,130.52	4,197.12
Profit before tax	3,031.88	1,242.25
Tax expenses	586.26	309.43
Net profit	2,445.61	934.78
Net profits after OCI	2,626.02	885.20

Opportunities and threats

Opportunities

- A positive long-term economic outlook will lead to opportunities for financial services

- Growing Financial Services industrys share of wallets for disposable income

- Regulatory reforms would aid greater participation by all classes of investors

- Leveraging technology to enable best practices and processes

- Corporates looking at consolidation/acquisitions/ restructuring opens out opportunities for the corporate advisory business

Threats

- Execution risk

- Short-term economic slowdown impacting investor sentiments and business activities

- Slowdown in global liquidity flows

- Increased intensity of competition from local and global players

- Market trends making other assets relatively attractive as investment avenues

Strengths

Strong brand name

Motilal Oswal is a well-established brand among retail and institutional investors in India. MOFSL believes that its brand is associated with high-quality research and advice as well as corporate values like integrity and excellence in execution. The company has been able to leverage its brand awareness to grow its businesses, build relationships and attract and retain talented individuals.

Experienced top management

The promoters, Mr Motilal Oswal and Mr Raamdeo Agrawal, are qualified chartered accountants with over three decades of experience each in the financial services industry. The top management team comprises qualified and experienced professionals, with a successful track record. The company believes that its managements entrepreneurial spirit, strong technical expertise, leadership skills and insight into the market and customer needs provide it with a competitive strength, which will help to implement its business strategies.

Integrated financial services provider

The broad range of offerings under Capital market business, Asset & Private Wealth Management and Housing Finance business helps to foresee client requirements and provide full-fledged services under a single platform. The production and distribution of all financial products and services help the companys advisors and clients attain their financial objectives with best-in-class services.

Independent and insightful research

MOFSL believes that its understanding of equity as an asset class and business fundamentals drives the quality of its research and differentiates it from its competitors. The research team is focused on equities, derivatives and commodities.

One of the largest distribution networks

MOFSLs financial products and services are distributed through a Pan India network. The business has grown from a single location to a nationwide network operated by business associates or directly through its own branches in 550+ locations. This extensive network provides opportunities to cross-sell products and services, particularly as the company diversifies into new business streams. In addition to the geographical spread, MOFSL also offers an online channel to service customers.

Established leadership in external wealth managers business

One of the key strengths has been the successful establishment of the external wealth managers business. The companys relationship with the external wealth managers has become stronger as they grow. MOFSL has multiple external wealth manager partner models and is strongly committed to enhancing the growth and profitability of each of its external wealth managers.

Strong risk management

Risk exposure is monitored and controlled through a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems. The risk management department analyses this data in conjunction with the companys risk management policies and takes appropriate action where necessary to minimize risk.

State-of-the-art infrastructure

MOFSL has consolidated its businesses under one Corporate Office - Motilal Oswal Towers. The integration of multiple MOFSL businesses provides a great opportunity to present a holistic solution to client needs and facilitates the "One Firm" philosophy. The infrastructure has been extensively leveraged to build deeper connections with our customers, business partners and corporates.

Financial prudence

MOFSLs operating margins continue to remain stable despite the fluctuations in market volumes and revenues. This is a result of creating a robust business model that can withstand the cyclical fluctuations in business volumes and simultaneously capture the opportunities provided by the structural growth of India.

During the year, CRISIL reaffirmed the Credit Rating of CRISIL A1+ to the Commercial Paper Programme and assigned CRISIL AA/Stable to Non-Convertible Debentures of the Company. CRISIL reaffirmed the Credit Rating of CRISIL A1+ to the Commercial Paper Programme, CRISIL PPMLD AA/Stable to Market linked Debentures and CRISIL AA/Stable" to Non-Convertible Debentures of Motilal Oswal Finvest Limited (MOFL), a subsidiary of the Company. CRISIL reaffirmed the credit rating of CRISIL A1+ to the Commercial Paper Programme of Motilal Oswal Wealth Limited (MOWL), a subsidiary of the company. CRISIL reaffirmed the Credit Rating of CRISIL A1+ to the Commercial Paper Programme, CRISIL PPMLD AA/Stable to Market linked Debentures and CRISIL AA/Stable to Non-Convertible Debentures and Bank Loans of Motilal Oswal Housing Finance Limited (MOHFL), a subsidiary of the company.

ICRA assigned a rating of ICRA AA/Stable to the Long-term Fund-based/ Non-fund Based Bank Lines and reaffirmed ICRA PP-MLD AA/Stable to the Market Linked Debentures, ICRA A1+ to the Commercial Paper Programme and ICRA AA/Stable to Non-Convertible Debentures of the Company. ICRA Limited assigned a rating of ICRA PP-MLD AA/Stable to the Market Linked Debentures and reaffirmed the ICRA AA/Stable rating to Non-Convertible Debentures of MOFL and ICRA A1+ rating to Commercial Paper of MOWL. ICRA has upgraded the rating of Non-Convertible Debentures of MOHFL to ICRA AA/Stable from ICRA AA-/Stable and reaffirmed ICRA A1+ to the Commercial Paper Programme.

India Rating assigned IND AA/Stable rating to Bank Loans and reaffirmed IND AA/Stable to NonConvertible Debentures, IND PP-MLD AA/Stable to Market Linked Debentures and IND A1+ to the Commercial Paper Programme of the Company. India Rating reaffirmed IND AA/Stable to Non-Convertible Debentures, IND PP-MLD AA/Stable to Market Linked Debentures and IND A1+ to the Commercial Paper Programme of MOFL and IND A1+ to the Commercial Paper Programme of MOWL. India Rating reaffirmed "IND AA/Stable" to Non-Convertible Debentures and Bank Loans of MOHFL.

Risks and concerns

The Board Level Committees viz. the Audit Committee and Risk Management Committee oversee risk management policies and procedures. It reviews credit and operational risks while the Asset Liability Management Committee reviews policies in relation to investment strategy and other risks like interest rate risk and liquidity risk.

Internal control systems and their adequacy

The companys internal control systems are adequate and provide, among other things, reasonable assurance of recording transactions of operations in all material respects and of providing protection against significant misuse or loss of company assets.

Internal audit is conducted by BDO India LLP, to assess the adequacy of the internal controls procedures and processes, and their reports are reviewed by the Audit Committee of the Board. Policy and process corrections are undertaken based on inputs from the internal auditors.

Human resources

The company emphasises continuous training to enhance employees skills and competencies, ensuring effective job performance. Employee incentivization, professional growth and recognition are core elements of human resource management, improving job satisfaction and overall quality of life. As of March 31, 2024, the groups total employee strength stood at 11,290.

Outlook

We have achieved robust performance across various segments. Our capital market business delivered exceptional results, achieving all-time high quarterly and yearly profit and solidifying our position in managing mass affluent and HNI client segments. Our focus remains on diversifying our business to liner sources of earnings. Our Asset and Private Wealth Management business reached a milestone with AUM reaching 2.1 lakh cr, showcasing significant growth. Our Asset Management arm witnessed notable improvements in performance and inflows, poised to benefit from structured investing and specialized offerings. Meanwhile, our Private Wealth Management division is making strides in scalability, supported by a strengthened leadership team and ongoing investments in Relationship managers (RM). Moreover, we completed the first close of our 6th Real Estate fund during FY24. In our HFC business, efforts are underway to bolster the sales force and enhance productivity to drive robust growth in disbursements and AUM. We are confident in the vast potential of each of our businesses and their ability to capitalize on market opportunities. Looking ahead, we remain committed to our strategic objectives, aiming for sustained growth and excellence across all our operations