In the past one year, the stock price of Motilal Oswal Financial Services (MOFS), India’s leading financial conglomerate, has surged by a staggering 153%, against an 11.52% rise in the benchmark Sensex. Making the most of this rally, director Navin Agarwal sold 600,000 shares worth 76.5 crore on September 28. Post the sale, Agarwal’s stake has reduced to 4.84% from 5.25%. This is the second time in this calendar year that Agarwal has sold in the open market. Earlier on June 15, Agarwal had sold 200,000 shares worth 25.5 crore.
MOFS’ performance has improved steadily over the past few years, with its assets under management clocking a CAGR of about 67% between FY13-17, and its net profit growing at a CAGR of 35%, during the same period. While the capital markets segment (broking and investment banking) still continue to be the biggest contributor to the firm’s overall revenue, its share in overall revenue has declined from 62% in FY15 to 37% in FY17 as MOFS has scaled other businesses. As for net profit, asset and wealth management business (35%) is the biggest contributor, followed by capital market business (30%). The contribution of housing finance business to profit has gone up from an insignificant 2% in FY15 to as much as 22% in FY17.
In the past one year, promoter holding has declined from 71.6% for the quarter-ending June 2016 to 70.8% for quarter-ending June 2017. Mutual funds, too, have reduced their stake from 1.76% to 1.48%, during the same period. Foreign portfolio investors have also followed suit, selling down from 13.1% to 12.7%.
A note recently released by credit rating agency ICRA stated that volume in the broking industry is poised to grow by 20-25% in FY18, given a positive investor sentiment and a healthy IPO pipeline, which will further encourage retail participation. But the market over the past few weeks has only looked ambivalent with negative vibes on the macro front. In addition, broking and financial services will be among the first casualty of a worsening investor sentiment and MOFS trades at a FY19 P/E of nearly 30x and P/B of 10x, making it extremely vulnerable to any market correction. Agarwal surely knows that.