Our thesis is that rising consumer incomes will translate into disproportionately higher allocation of these funds into equities. Right now, under 3% of India's retail assets are invested in stock markets. Cash, bank deposits, real estate and gold dominate the pie-chart on how Indians invest their wealth. As economies develop, this % rises to as high as 30-35% in the US. Further, the stock broking industry is highly fragmented and seeing a gradual consolidation. Motilal Oswal's growth has outpaced that of the industry and the company should continue to gain from this consolidation.
Sridharan also promises BVP will be a patient - andf truly long-term - investor in the company:
The main concern with the brokerage business is cyclicality. Trading volumes drop sharply during a downturn. When (notice that I havent said 'if') the Indian stockmarket enters the next bear phase, Motilal Oswal and its competitors will clearly be affected.
Then what? We wait! Ups-and-downs are a part of this game, and one of values of patient capital is to be able to support a company through a potential downmarket. The secular shift towards greater equity investment will continue and we expect growth across a cycle to be robust. Further, leading firms are better placed to weather a downturn and may even be able to accelerate industry consolidation by rolling up smaller firms that have been affected to a much larger extent.
Also check out Sridharan's related post on why BVP decided to go in for a "broader investment focus in India" as against focusing on early-stage, technology companies like it does in the US.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.