Motilal Oswal, 53, founder and chairman of Motilal Oswal Financial Services, has, together with co-promoter Raamdeo Agrawal, created a financial services group straddling multiple areas, including asset management, broking, home finance, private equity and private wealth management. Oswal talks to Forbes India about various issues related to the economy, the government’s agenda and emerging trends in the entrepreneurial ecosystem. Excerpts:
Q. Are we getting any closer to ‘acchhe din’ now that the Narendra Modi-led government has been in power for over a year?
If you look at the macro versus the micro environment, the macro indicators are giving you the right picture. Things seem to be going right, and they are improving. If you look at inflation—both wholesale and retail—interest rates, forex reserves, the IIP [index of industrial production] which went negative earlier, the government finances and even the currency, it [the government] has been able to improve things. Corporate numbers are disappointing. Things may have been postponed by two quarters. They have passed the Budget, but for the money to flow into roads, power, railways, defence, it is going to take time. The micro impact is yet to come.
If I look at business confidence and the confidence of international investors, that has shot up in a big way. On capital markets, they have already voted for the government. Look at FII [foreign institutional investors] money: Forget about equity, even in debt, the confidence is increasing; last year it was negative. Domestic investor confidence is also visible from the money coming in by way of mutual funds. This is the first time after many years of redemptions that this is happening. You’ve also started seeing some IPOs [initial public offers], though the quantity is small. Then there are QIPs [qualified institutional placements]. The appetite of private equity funds is also increasing.
Yes, the Land Bill is still stuck. But you also see the track record of Parliament: They passed insurance [reforms] despite all odds, they could do coal, spectrum and mining. Some labour reforms have also been undertaken. They’ve shown the intention of pushing through the Goods and Services Tax (GST). I would say in year one itself, they’ve been able to start taking action immediately. When a new CEO comes, it takes one year for him to understand the company. And don’t forget the wide range of stakeholders involved, which the government has to deal with.
Q. Are you hopeful about disinvestments this year?
I think there will be [disinvestments]. The markets have also supported them. I think every month they should do one or two. They should clear a road map for disinvestments so that everyone is clear. I feel they’ve been able to manage the situation so far in a tough environment.
Q. Do you think the government and the Reserve Bank of India (RBI) are on the same page on most issues?
I think so. See, governments want populist measures. But the RBI would have different compulsions. Remember, inflation was creating problems for the last three years. And they believe in their own data. You do need somebody who takes an independent assessment. The RBI has very clear thought, and is independent and policy-driven.
Q. Given all these issues, where do you see the markets headed now?
It’s very difficult to predict. We have seen a huge amount of appreciation. It’s going through a consolidation phase now. We need a trigger. The trigger can be interest rates or a big policy measure like, say, the Land Bill or GST. Or some kind of internationally big scenario where the FIIs come in with big money. Whether it is political or corporate performance, we need to see some triggers. Markets are high, but the jitters are on the corporate performance. Another cause of worry is on the Rajya Sabha. To take all stakeholders along, particularly because in many states they are running coalitions, is a mammoth task.
Q. We are already seeing mergers and acquisitions (M&As) activity once again. For instance, in the Aditya Birla Group or the Biyani-Bharti deal. Do you see more of that happening?
See, M&As happen in two scenarios. One is in good markets and the other during tough markets. I have seen M&As when markets are tough. When there is stress, M&As happen. But in rising markets, expectations go very high. I think they will keep happening. The big will become bigger and dominate the markets.
Q. The biggest problem which India faces is that of job creation. What is your view on the employment crisis?
While it is a very big problem, enough data is not available. In the US, job data is very critical and robust. We don’t have data. The job market remains tough but the supply side is on. You have so many graduates and postgraduates coming in from colleges, but those kind of opportunities aren’t there. If you look at financial services companies like ours, they are good employment generators. But employment still has to catch up.
Another thing is, by producing graduates or postgraduates, the employability does not improve. That’s where training and coaching become critical. In our case, for instance, if an MBA fresher comes in at Rs 4 lakh, in one year his value goes up by 50 percent. One year’s experience increases his value by 50 percent. So if that can be done as part of the curriculum, it will make a big difference. There is a demand for skilled people and a huge supply of unskilled people. One of the things I can think of is, can the government incentivise the first two years of the freshers’ employment in companies? Or the organisations which are imparting skilling programmes, can they be incentivised? These things have to be thought through, but they will make a very big difference.
Suppose I want to take training in a brokerage firm. But broking firms don’t want to take freshers. Now, can they create an institution—say IL&FS, National Stock Exchange or BSE—where, at subsidised cost, they provide training to such people? Why are IIMs and IITs in demand? Because they know what is the need of the corporate sector. So fresh IIM and IIT graduates get placed immediately, while other graduates don’t. IIMs and IITs have a number of programmes oriented towards making students employable as part of their curriculum. The government system is not geared to do that, so can the private sector be brought in to impart relevant skills? For the government to successfully do that, it will take a lot of time and the cost will be very high.
There can be evening courses for college students geared to impart courses for the financial sector, and firms like ours would be happy to give financial support to those institutions. Because that is in my interest. Say, there is a brokers’ association. It would be very happy to take on a part of the cost of such training programmes because that is in the interest of the industry. So the government can give some subsidy, the relevant industry can give some subsidy and the candidate pays very little.
Suppose the cost of training a graduate is Rs 10,000, the government, the industry and the candidate can share around Rs 3,000 each. The candidate then knows that at a nominal cost, he can become employable after graduation. It’s a win-win for everyone.
Q. Let’s talk about the current ecommerce wave. There’s a lot of debate around whether the deep discounts model followed by many ecommerce players is sustainable in the long run. What do you think of this trend as a financial services player?
Let’s look at my business. It [technology] brings huge amount of scalability, efficiency and a great customer experience. Through my mobile, I can not only track prices, but I can also track my research, I can buy shares, I can monitor my portfolio… I can do a lot of things which I couldn’t do earlier. Because of technology, my cost of generating leads also comes down. Getting customers and servicing them brings scalability.
Coming specifically to the ecommerce model, everybody is thinking that right now, I need to get customers. And to get these guys [customers], I have to give some incentives. The players are now spending money on customer acquisition. And the moment they feel they have a sizeable number of customers, they will focus on making money. This is the investment phase. Another thing is, a huge amount of capital is available for ecommerce. Investors say you show us the customers, the turnover, the logistics, whether the products are being delivered on time, we are willing to invest.
Look at Uber. I can call the car here, it will come in five minutes. The cost is low, there is efficiency, so why shouldn’t I use it? And look at Uber’s huge market value. Whether they make money now or not, it’s good for the customers. If customers are willing to pay, at some point, they will make money. And if I am a student and I have a car and I need to work for four hours a day, I can enrol myself with Uber and become a part-time taxi driver. So this model also gives employment.
Technology platforms have made life simpler for consumers and businesses. However, the businesses also have to be rational. But remember, there are a lot of manufacturers who also give discounts.