When investors turn shy

A presence across 450 cities and having about 500,000 investors in the kitty are two surefire signs of the searing growth Motilal Oswal Financial Services (MOFS) has clocked in recent times. But when stock markets tumble, managing such an investor base and such a widespread network becomes a huge challenge. MOFS, which got listed on the stock exchanges last September, has faced downturns before. This time, however, it’s different— not just because of the extent of the bear grip but also because of MOFS’ sheer size and scale.

In June, MOFS cut its staff strength by 4-5 per cent, or 100-odd employees. The firm says this was an outcome of an annual appraisal. But that’s not the only way MOFS is coping in a bear market. Sameer Kamath, Senior VP and Head of Corporate Planning & Investor Relations, at the company explains that in a booming market, the focus tends to be more on grabbing the opportunities on the revenue side. “But in sluggish times, the only way to protect margins is to see how best we can use existing resources.” What works in MOFS’ favour is its franchisee model which keeps a lid on fixed costs.

Also, since the firm has centralised its back office operations, account-opening processes and technology-related operations, franchisees don’t need to hire people. This keeps MOFS focussed on getting new business.

To manage manpower efficiently, the firm is encouraging its advisors at local branches to multi-task. Example: they do a back-office job for their clients even as they get new client referrals from existing ones. MOFS has also taken several steps to sustain its current investor base. It has increased the number of investor camps across cities; and initiated a reactivation campaign to persuade relatively passive clients with investing potential to become more active. A centralised advisory desk in Mumbai ensures that any client calling for advice is automatically routed to the appropriate adviser.

The Motilal Oswal way • Increase the number of customer camps across cities • Increase contributions of diversifications like private equity and investment banking • Continue with a franchisee model as fixed costs are reined in • Use idle cash on balance sheet for risk-free arbitrage opportunities Industry review If you thought a 60-70 per cent erosion in brokerage stock prices since January is how bad it can get, analysts at Deutsche Bank reckon there’s more agony in store. In a recent report, it points out that Indian brokerages, despite a sharp drop in prices, are still trading at a premium to the broader market; in many other countries, broking stocks trade at a discount due to the higher risk to earnings. The need is to diversify those earnings. Brokerages have been doing that by stretching into wealth management, private equity and investment banking.