Motilal Oswal Q3 net up, says Q4 will be challenging

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Motilal Oswal Financial Services has announced its results for third quarter ended December 2010. Net profit in Q3 rose to Rs 42 crore compared to Rs 33 crore it reported in the previous quarter. Its consolidated total income went to Rs 160 crore versus Rs 154.5 crore in Q2.
 
In an interview with CNBC-TV18, Raamdeo Agrawal, Director & Co Founder, Motilal Oswal Financial Services gave his perspective on the quarter gone by and the road ahead.

Below is a verbatim transcript. Also watch the accompanying video.

Q: Take us through your earnings itself - was it a satisfactory quarter as you look into what might look like a more challenging quarter?

A: I think current quarter has been very stable compared to that of last year somewhat better than the preceding quarter. So I would say satisfactory. But the growth which was visible in the stock market itself in terms of volume that is not reflected here because purely the volumes have grown more in the options market and the cash market has actually come down significantly.

So, all in all, I think 6-7% growth at the top-line level and about 12-13% growth on the bottom-line level at Rs 42 crore looks to be satisfactory. I think more challenging is the next quarter because of the way the market is shaping up, the way cash volumes are slumping, I think it may be early days. First month is gone, budget and then post budget let us see how things pan out. But start of the quarter does not seem to be very satisfactory.

Q: Given that we are declining and volatility could increase - of course volumes have been on the lower side certainly not help but do you think that since budget is around the corner and volatility might increase going forward you might find some support?

A: One support could be a change in the market trend and hence volume to do an average of better than what we are seeing in the first month. But I think we will get some support in i-banking revenues which are lumpy in character, which has come down significantly in Q3 and could be much bigger than Q4 because these are done and revenues are yet to be accounted for.

So I think Q4 has some positive surprises. As well as now the way the market is shaping it is very difficult to figure out how the volumes in the cash side will shape up. But the first 15-20 days do not augur well.

Q: The more important news that we got in the past couple of weeks is the way Indiabulls said that it is actually trimming down its retail outlets. Do you think that will be the way to go considering like you said most of the volumes are coming in options and there isn't much money in that?

A: At least we do not have that much corpus at this juncture. Rationalization of distribution structure is clearly an everyday affair. But actually we are still building up in terms of total franchises. We are closer to 1600 outlets right now. We are definitely phasing out the ones which are small ones and adding up to the new ones in newer locations with the hope that with a gap of 3-4 months, six months or even a year the retail investor will come back to the market and that is a hope. I do not think we are not yet thinking on those lines.

Q: Can't resist not asking about the markets today, even as you speak the markets have moved down firmly from that 5500 mark to 5480. What do you think has caused this hymen since the past three days specially after the credit policy - is there something that turned the tide on that day?

A: We had a perfect Diwali and after that whatever we have seen in headlines, whatever is happening in Delhi, the kind of noise that is coming out from there and the whole confusion about management of inflation, tightening of monetary policy.

My sense is that FIIs are not comfortable. Increasing further stake at this juncture whether the economy is going to grow at what pace, whether too much of growth will sacrifice to control inflation because inflation is not - monetary policy does not have that kind of impact on inflation and yet monetary policy is the only tool left for the government to do something about the inflation.

So tightening of interest rates and hence some amount of growth being sacrificed and how much growth will be sacrificed nobody can calibrate whether you want to go from 9 to 6.5-7% or 7.5% nobody knows. I think it is little uncertain times, valuations were very rich at about Rs 73-74 lakh crore total marketcap which has come down to more comfortable Rs 66-67 lakh crore.

So I think it is on the backdrop of the uncomfortable headlines and the cases of corruption. So some kind of a de-rating of the market may happen because other markets in the region are not as badly off as we are doing right now. It is a matter of de-rating.

Q: Where does one hide at this point even consumers don't seem to be doing well HUL the numbers have disappointed, IT also weak slightly but do you think something like IT which has more global exposure towards developed markets could be a place to hide for people?

A: I think in this kind of market the only way you can save yourself is being in cash. Broadly if you are in the market you will get hurt, maybe a percentage plus or minus. But if you are in equities you will get hurt in this kind of a downswing. It is impossible to have one stock which is going to be winning as a predominant in your portfolio.

So I don't know what you can buy in the market which will save you from a 10% downswing in a market. The best way is to stay on the side or stay in cash if you don't want to take market risk.

Q: Are you getting a sense that there is much more selling to come after all today a bulk of the selling has happened on low volumes, we have just about managed to get to one lakh crore, do you think a lot of people are left out there holding the baby and therefore the technicals of this market are pointing to for the selling?

A: I don't have any specific understanding of that, but at some level because earnings are very good valuations have become much more comfortable, the bigger investors in FIIs they have not been able to sell any meaningful quantity and this is the first month when they are talking about some net negative figure which is also not that big.

It is the lack of buying, nobody domestic mutual funds, domestic insurance, foreigners; nobody is a buyer net-net on the ground. So even if there is Rs 1000-2000 crore selling in a Rs 60-70 lakh crore market cap, I think it's putting a lot of pressure on the prices.