How Motilal Oswal is upholding its 33-year- old legacy of wealth creation through its ‘Phygital’ transformation

Around 33 years ago, personal computers were slowly gaining traction, the world wide web was still two years away from being conceived and landline phones, often shared, were the only way India connected.

Even wealth creation as a concept had not evolved beyond savings tucked away in fixed deposits of banks and investments in gold and real estate. The Securities and Exchange Board of India (SEBI) was not yet established, which meant that no uniform regulations defined the operations of the 20+ stock exchanges operating in the country.

At the time, investors trading on the Bombay Stock Exchange (BSE) could only place their orders through brokers carrying out ring-trading between 12 noon and 2 pm. These shares would then be physically delivered from seller to buyers in a process that would take close to one month. Given these high barriers to entry, the stock market saw few participants.

It was in this scenario that Motilal Oswal and Raamdeo Agrawal – one of the most iconic duos in Indian stock broking industry today – sensed an opportunity. The two friends realised that there was a shortage in professionally-run brokerage houses, then the exclusive domain of family businesses. Given that there were no entry barriers and capital requirement, the chartered accountants (CAs) set up a sub-broking house in 1987, based solely on the principles of honesty, transparency and a client-first attitude — principles that continue to underscore its operations in a hyper-competitive space driven solely by pricing, even when it has grown to be a Rs 10,000+ crore company that it is today.

Setting strong foundations

In the late 80s, investors had to solely rely on their brokers for any information on the prices of their stocks being transacted. This provided opportunities for brokers to charge larger commissions by quoting the lowest price of the day while selling, and the highest price for the stock being bought.

But right from the beginning, Motilal Oswal stood apart by being honest and transparent, giving their clients an accurate daily update on the prices of the stocks being traded for the day.

Another key differentiator was the bankable advice provided by Motilal Oswal to clients. This aspect was handled by Raamdeo Agarwal, who, before co-founding Motilal Oswal, was an equity analyst and was available to all his clients 24x7 on the landline telephone, which the duo considers as their best investment till date.

Thus, the initial years saw Motilal Oswal carrying out the trading for the day on the trading floor of the BSE with the brokers, while Raamdeo Agarwal would work with the clients to provide them advice backed by solid research. Their CA backgrounds also helped cement their status of Motilal Oswal being a professionally-run company. This worked in their favour as the belief was that corporates had no personal gains to make, as opposed to those running a family-run business – the majority of broking houses at the time.

It is this strong foundation of a client-first attitude and research-backed advice that has helped Motilal Oswal grow from two people to a company that employs 4,500+ people today, with each employee’s sole mission being to help over 11 lakh investors and traders profit from their research-based stock advice.

With more and more retail investors today picking up an interest in stock markets as an investment avenue or as a tool to generate some extra income, Motilal Oswal continues to attract profit-oriented investors who swear by the profits the quality of advice provided by the Research team at Motilal Oswal has helped them generate. This strong pull of Motilal Oswal’s award-winning research is evident from the fact that over 35,000 investors open their trading accounts with Motilal Oswal every month to help them profit from the stock markets.

Walking the talk

In the first three years of their operations, Motilal Oswal saved up Rs 12 lakh, all of which was put back into the market through a carefully crafted market portfolio based on extensive research. This “Walk the talk” approach expressed the founders’ confidence on their research in a powerful way. The founders continue this practice even today, by investing their personal wealth in funds run by the company – funds that have grown to an amount of Rs 2,400 crore approximately – which reiterates the founders’ faith in their company’s research capabilities.

One of the key reasons why Motilal Oswal is able to create a portfolio of leading companies is the QGLP, a proprietary filter developed by Raamdeo Agrawal where stocks are picked on the basis of — Quality (of management), Growth (in earnings and sustained return on equity), Longevity (of competitive advantage) and Price (whether investors paying a fair price for a good business).

In their early days of operating solely as a sub-broking firm, the duo realised that key factors deterring retail investors from making money in the stock market was the lack of clarity on how equity markets functioned; the reasons that drove the stock prices of companies; and various investment and risk management strategies.

Given that their mission statement is to help people make money in the stock markets, the founders felt there was a need to address this gap by providing the right advice to people – even if it meant losing out on brokerage at times. In their early days, a client – a financial institution – wanted to sell 1.5 lakh shares of a company called S.K.F. Pharma. Carrying out the sale would have meant Rs 5 lakh in commission for Motilal Oswal. At that time, no revenues earned were too small to be ignored. However, according to Raamdeo Agarwal’s research, the price of the stock was expected to increase. The founders, in the best interest of their client, forwent their commission and advised their client to hold onto their shares for longer. Sure enough, the price of the share tripled in a few months, further solidifying Motilal Oswal’s reputation as a client-first company and bringing in even more customers who valued such honest advice.

Following their first big break with the Harshad Mehta-led bull run, Motilal Oswal further backed their conviction in the power of knowledge by starting a research team that was three times larger than their corporate office team, and whose budget was 30 percent of the gross revenue. This laser-like focus on research and developing expertise has been the foundation of Motilal Oswal’s efforts in wealth creation till date

The group continues to build on research capabilities – hiring even in the time of lockdown – to ensure the clients get the best advice at the right time. This is what continues to bring a vast range of clientele to the company, from millennials that are entering the markets for the first time and looking for guidance, to senior citizens looking to earn profits from the market in a significant way.

“At Motilal Oswal, every stock recommendation that goes out to our clients either through our advisors or mobile apps is thoroughly researched and filtered through our proprietary research models - QGLP being one of them - to ensure the best risk-reward for our clients. This client-first approach to ensure that right advice is delivered at the right time is what makes our clients value us above other brokers”, says Hemang Jani, Head - Retail Equity Strategist at Motilal Oswal.

To distill their insights on India's fastest and the biggest value creating companies that would make money for their clients, Motilal Oswal has also been releasing an annual wealth creation study since 1995.

Since its humble beginnings as a broking house, Motilal Oswal has come a long way to become the financial conglomerate it is today with interests in broking, distribution, wealth management, mutual funds, housing finance, private equity and investment banking.

The company saw its revenue grow to Rs 2,411 crore in FY20, up from Rs 468 in FY14. Its Profit After Tax (PAT) also witnessed substantial growth to Rs 398 crore in FY20, up from Rs 40 crore in FY14.

Heralding the future of wealth creation with Phygital

In an industry where brokers are trying to differentiate themselves through just pricing, Motilal Oswal continues to stand by its principles of quality advice to ensure profitability for its clients. It continues to believe that if the profits are sufficient, the pricing will justify itself.

To that end, the team at Motilal Oswal believes the best route is going Phygital — an investment advisory approach that harnesses the best of both physical and digital approaches to ride the tide of uncertainty towards wealth creation in the current scenario.

Through this approach, Motilal Oswal aims to leverage the advantage of last-mile connectivity with investors to provide customised services to every individual, which was otherwise not possible with one-to-one human interactions. To that end, contrary to industry trends heading to a digital-focused approach, Motilal Oswal has a presence in over 2,200 locations, and it is still expanding its physical presence, even in times of a lockdown. It also aims to empower the advisors to gain an in-depth view of the client’s investment needs, favorite trading areas, among others, to further enhance the customised experience they need.

“The entire concept of Phygital for us revolves around marrying human intelligence with artificial intelligence. An advisor to my mind is a sounding board and aid in investment decisions of his/her client. While an AI engine will generate ideas and even disseminate it, advisor resonates with the need of the customer and tailors his discussion and to an extent even chipping in during the 11th hour to help the customer make the right choices”, says Ajay Menon, CEO, Broking & Distribution-Motilal Oswal Financial Serivces Ltd.

Motilal Oswal’s focus on embracing the Digital part of Phygital is evident from the fact that they have recently launched a revamped version of their trading application – MO Investor – in a manner that promises investments with a KISS approach (Keep Investments Straight and Simple). Apart from simplifying investments for their clients through the new app, Motilal Oswal is way ahead of its competitors in leveraging its digital properties to deliver personalised stock trading recommendations in real time to its clients to improve their profitability.

At the same time, the team at Motilal Oswal also believes humans are irreplaceable, given the qualitative output that leads to higher brand recall and client stickiness and hence is investing heavily in growing its army of over 1,100 advisors who handhold all the clients on their journey of wealth creation through regular investment and trading advice and inputs on their existing portfolio.

At the heart of this new Phygital experience that Motilal Oswal wishes to provide its valued clients is the insight derived from rigorous research capabilities and knowledge building. It is this expertise, which spans over 30 years, that empowers new investors and traders to take the path of meaningful wealth creation and look beyond brokerage to make some serious profits instead of saving pennies.

To know more about Motilal Oswal and their services, click here.

This is the first article in a three-part series. The next article will outline the importance of research and advice in stock market investments and how it forms the core of Motilal Oswal’s operations.