WF: Two years ago, your AMC was regarded as a "fringe player". Today, with a Rs.5000 crore equity book across your MF and PMS platform, your AMC is counted among the top 15 in the equity space - by no means a small or marginal player. What in your view has enabled you and your team to make this hugely challenging transition from a marginal player to a mainstream competitor?

Aashish: Dear Vijay, I want to thank all our distribution partners - our backers and early adapters without whose support we could not have made a point here. A BIG THANK YOU. Whoever said equity MFs are sold only through NFOs and / or for upfront commission needs a serious reality check!!!

Over the last two years we have had to fight a few perceptions created in our industry. Prime one being that "small is not beautiful" and "small is by default, not by design"!!! The other one is that you need to pay upfronts and launch closed ended schemes to garner AuM! I started off saying, I disagree!!! Our growth shows people have started to disagree as well!!! The way Motilal Oswal Financial Services views its AMC business; it is about equity investment management to create wealth for investors. This requires core competency in equity management and then of course, B2B + B2C client servicing. You will notice, this has nothing to do with size and it is actually borne out in our PMS and equity MF performance.

The No. 1 reason for our growth is FOCUS - we are a single strategy equity only AMC. That enables clear articulation of our investment philosophy namely BUY RIGHT : SIT TIGHT and our unique business positioning:

1. Managing Equity Only

2. No Load Funds with High Trail (Distributors gave us over Rs 1000crs in Equity MF without loads and upfront in 18 months!!!)

3. Focused Product Range - Only 3 equity funds plus one ELSS; and Only 2 PMS portfolios

4. Focused Concentrated Portfolios - none of them has over 20 stocks

5. No Churn

As a testimonial I can share Michael Mauboussin in his book "More Than You Know" highlights US experience that fund managers who have outperformed over the long tenure have had following traits; all of them are actually common to Motilal Oswal's philosophy:

1. Value biased approach

2. Buy and Hold

3. Low Churn

Secondly, our industry in my humble opinion has some notions about brands, their advantages in the business and what they bring to the table. Industry does not give enough attention to specialization, core competencies or to focus. Our industry behaves as if our consumers would be perfectly fine to consume Dosas from McDonalds, burgers from Saravana Bhawan, Malai Kulfi at Baskin Robbins and Gujarati Thali at Oh! Calcutta! Bas kya???….with maturity of industry and sophistication of consumers, specialization becomes key. Motilal Oswal is setting a new trend for the AMC industry in India.

It is an asset to have a widely recognized retail brand but to believe everyone excels at everything is carrying it too far. If something is bought based on past performance, I understand but pre-judging capabilities of brands irrespective of background is a mystery to me. So in our case, we were told "broking brand" is not necessarily an advantage. But, Motilal Oswal has done only and only equity research, wealth creation studies, pure equity portfolio management for 12 years, servicing institutional investors including FIIs, and retail investors for equity advisory etc. for over 25 years now!!! When looking out for investment expertise, shouldn't relevance of experience be actually relevant as opposed to only size of brand?

I think our sales team led by Akhil Chaturvedi has done the tough job of clarifying some of these issues over the last 2 years and that has lead to wider acceptance.

Most critical in our business is that our investment management team - Manish Sonthalia and Kunal Jadhwani for PMS and Taher Badshah, Gautam Roy and Siddharth Bothra for MF under thought leadership of Chairman, Mr. Raamdeo Agrawal - has backed the messaging with solid performance.

WF: How will you distinguish your PMS platform from your MF platform for HNI investors? What considerations should prompt an affluent investor to choose between the two propositions?

Aashish: Ultimately returns come from asset class and the investment manager but these are two different vehicles with different target audience. I feel each and every person reading this article should be keeping PMS as a solution in their repertoire if they want to truly serve all client requirements and deepen wallet share. When you read this, please don't conclude I am selling or deselling any one vehicle, I have managed both through my entire career so no favorites!

Let's take a note first of our Indian Equity market construct. We are at about Rs 100 Lac Crs of market cap off which 25% is with FIIs, 55% is with promoters, 10% is with DIIs and the remaining 10% is with retail investors which is called Non-Promoter : Non-Institutional Holding. These are not accurate numbers but close approximations. So, the direct equity holding is about 3 times the equity MF holding!!! What is PMS? Professional Management of Equity Portfolios, you go to some of these people and tell them, please don't do trading yourself, give it to a full time manager. So potential is immense. If we expect these people to liquidate demat accounts and invest into MFs, it's going to be a long haul - would have happened long back if it had to. Shouldn't we go to these equity converts and tell them let me do it for you, or should we only spend all our time asking people to move from fixed income, gold, real estate and invest in equity MFs? That answers the question hopefully but do read on if you want more pointers…

1. PMS has minimum of Rs 25 lacs, thay may make the task difficult but if you succeed, it enhances asset base much much faster. Also, its good to go to the bottom of the pyramid, but not at the cost of neglecting the top!!! MF industry is definitely guilty of this "bottom of the pyramid" psychology. We want the driver's 100 Rs SIP before even we have made an attempt to take the owner's 20,000 Rs SIP!!! PMS allows you to focus on people who are already mass affluent and also equity initiated.

2. MFs can only accept cash inflows; PMS usually starts by accepting a stock transfer or cash or a combination of both. This automatically means that the market for pms as it stands today is very large. Basically anybody holding stocks in their demat account over Rs. 25 lacs becomes target for portfolio management service. The Non-Promoter : Non-Institutional Holding of equity shares in India as per my estimates is about Rs 10 lacs crs as stated above.

3. Keep in mind, most new wealth creation is happening through stock options, which can be quickly diversified if some portion is liquidated and given to a good PMS Manager.

4. Non-Promoter : Non-Institutional Holding of equity shares is higher in poor quality stock and lower in top quality stocks. It's 4pc of Nifty 50 stocks, about 7 pc of bse200 stocks, 8pc of cnx500 stocks and 10pc of entire market. That's clear proof that individuals left to their own love to buy low quality at low valuations and that's usually a trap. In real life stock market situation there's no princess? kissing the frog and making him into prince charming. Do - It - Yourself equity investors seem to have this chronic habit of investing in trading ideas and trading in investment ideas! They can do better with us PMS Managers!

5. MFs are relatively more exposed to vagaries of investor psychology. They get money after they perform or after market goes up and the vice versa in this case is more dangerous. Sometimes, what gets sold is what can be sold!!! PMS has isolated individual holdings so one investors behavior doesn't impact another investor's holdings.

6. PMS is more transparent because every trade triggers intimation to client and complete portfolios are available for viewing live. Mistakes can't be hidden. In an MF if one stock blows up, regular inflows can be used to tide over and buy something else. In a PMS if any holding blows up, there's no choice but to explain to investors, cut losses and move on. You don't have luxury of asking for more money whereas in MF inflows are regular.

7. People compare MF performance with PMS performance, it's an irrelevant comparison. Please compare what the client would have done on his own demat holding vs. what you can add by moving to a good PMS Manager.

8. Expense ratio disclosures of PMS are transparent because each client signs the fee structure; it's not part of some offer document or fine print. Further expense can be customized for large ticket investments. Profit sharing is permissible too.

9. Our experience tells us that PMS ageing of investors is at least 1.5 to 2 times longer than MF. This results in win-win for investor, distributor and AMC. Investor is more likely to get results and AMC and distributors more likely to be profitable if they deliver.

10. The only disadvantage of PMS is likelihood of short term gains if portfolio manager makes too many short term trades and strategy changes. This is lot less likely with Motilal Oswal's BUY RIGHT : SIT TIGHT investment philosophy which is well adapted to managing PMS over last 12 years. We are India's largest local onshore PMS manager and also our Value PMS has the oldest contiguous track record.

WF: Some large fund houses seem to be enhancing their ETF product suites in recent times. Is this a sign of emerging investor interest in this space or is it more with an eye to the future? How do you see the ETF space developing in the coming couple of years?

Aashish: At this juncture, I would say it is plainly competitive and with an eye to the future. That itself could hasten the awareness and ETFs' progress so it's good. We can see interest coming in slowly but for now whatever inflows we see seem to be opportunistic in nature. Long term inflows into ETFs can only come after more long term vehicles like family offices, insurers, pensions etc make strategic asset allocation investments into ETFs. Take off in the RIA practice can also create tailwinds for ETF but all of this seems to be some distance away for now.

I personally feel that ETFs are relevant for institutions, RIA practitioners, fee based planners, asset allocators etc. For retail investors in a distribution model, I don't see ETFs taking off anytime soon.

WF: What are the key insights you would like advisors to imbibe from your recent Wealth Creation Study?

Aashish: The study was titled "100X". If there has to be one single take away - I would say, that the Sensex has gone 100 times in 30 years at 17% CAGR. Not only this, there are 47 stocks which in the 20 years time bucket of 1994 to 2014 have gone up 100X or more. As an investment manager what one needs to buy and hold on to 100X ideas is:

1. the vision to see them

2. the courage to buy them and

3. the patience to hold them.

Patience is the rarest of the three.

Our philosophy BUY RIGHT : SIT TIGHT endeavours to benefit from these insights. We always advise BUY RIGHT : SIT TIGHT because we have noted that equity or MF whatever, when people BUY RIGHT, they book profits and when they BUY WRONG, they become long term investors!!!

Equity is for wealth creation, it is an asset class to be held for compounding. It is not meant for booking profits and rebalancing at every 20% uptick. I don't think Rs 10,000 invested in Wipro in 1980 could have become Rs 500+ crs now, if the owner kept booking profits, rebalancing and "reviewing" asset allocation!!! If something is working, ride it; do not disembark and look for something else!!!

WF: Some experts believe that 2015 may be a volatile year for equity markets, largely due to a fragile global environment. What is your market call for the year ahead?

Aashish: The way we invest in our funds, we are strictly bottom investors and hence wider economy or market conditions are not our major concern while investing. We have to take note of circumstances, headwinds and tailwinds but we aren't necessarily pre-occupied with them. For instance, it is widely quoted in the press that Oct-Dec 2014 as a quarter would be the worst with earnings growth around 2% Y-o-Y only. For our portfolio stocks, it will be more like upwards of 20%.

Having said so, our call is that we are amidst a strong equity rally with many tailwinds which are specific to Indian equities like a reformist Government and improving macros. The actions of the RBI Governor along with declining inflation, resulting in high real rates will ensure that Indians will invest as much or more than FIIs into equities. So, local factors are very buoyant.

As far as global environment is concerned, in our experience it has always been a source of some sharp volatility and eventually the market settles down to respond to local factors. Investors do react indiscriminately across markets when there is a panic and resultant reduction in risk appetite. But, eventually when the dust settles, they go back to fundamentals of each market. Inflows into Indian equity post 2008-09 and more recently after the QE tapering scare in May 2013 are a case in point. So any global factor related correction is an opportunity to buy.

Sometimes all of us act funny. On a lighter note, we keep waiting for corrections, but when corrections come, we have a habit of running away. We keep complaining about valuations, but when Coal India supply came and institutions sold we started getting scared. How will valuations correct unless earnings go up or fresh supply comes in? We keep thinking FIIs will sell but now they own over 25% of our Rs 100 lac crs market. Back in 1991, they held nothing in a Rs 2 lac crs market!!! I can't see what selling do we fear?

According to me, the only thing we Indians need to fear is losing ownership of our India story!!!

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