Motilal Oswal Financial Services Ltd

NSE:MOTILALOFS

Q1-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to the Motilal Oswal Financial Services Q1 FY '26 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Manish Kayal, Head of Investor Relations. Thank you, and over to you, sir.

[Manish Kayal, executive]

Thank you, [ Reyum ]. Good afternoon, everyone. I'm Manish Kayal, Head, Investor Relations. I welcome all the participants on behalf of Motilal Oswal Financial Services Limited for you to take time out to attend our Q1 FY '26 earnings conference call. We hope that you had an opportunity to go through our investor deck and press release, which was uploaded yesterday on stock exchanges and on our website. We also have uploaded the Excel data book, which has historical operating and financial numbers.

Please note that today's discussion may include some forward-looking statements, and these forward-looking statements are based on our macro assessment and actual outcome may vary.

With that, I'll introduce our management participating on this call. We have Mr. Raamdeoji Agarwal, Chairman of the Group; Mr. Motilalji Oswal, Managing Director and CEO; Mr. Navin Agarwal, Group Managing Director; Mr. Ajay Menon, CEO of Wealth Management Business; Mr. Prateek Agrawal, MD and CEO, Asset Management Business; Mr. Ashish Shanker, CEO of Private Wealth Management; Mr. Sukesh Bhowal, CEO of Housing Finance; Mr. Shalibhadra Shah, Chief Financial Officer; and Mr. Sanchit Suneja, Group Chief Strategy Officer.

We'll start this call with an opening remark by Navin Agarwal, and then we'll have a Q&A session. Over to you, Navin.

[Navin Agarwal, executive]

Thank you, Manish, and good afternoon, everyone. It is my pleasure to welcome all of you to our earnings call for the first quarter ending June 2005 (sic) [ 2025 ]. As usual, I'll start by providing a quick snapshot of the quarter at the group level and then highlight segment-wise performance and finally conclude with the broader outlook of the overall group.

The first quarter performance continues the momentum that we were witnessing in the past few years. It is the highest ever quarter in terms of our reported profit after tax at INR 1,430 crores, which is up by 40% year-on-year.

Our operating profit after tax grew by 21% on a year-on-year basis to INR 522 crores, mainly driven by our asset and private wealth businesses besides the capital market business.

We crossed several milestones across our various businesses during this quarter. AMC continued to gain market share, both in mutual funds and alternate segments and reached a major milestone of INR 1.5 lakh crores of AUM -- equity AUM.

Capital markets saw bigger deal pipeline, more deal executions, higher research coverage and the highest ever revenues. Housing finance business crossed a milestone of INR 5,000 crores of AUM. More companies getting listed. The overall virtuous cycle created by listing of these businesses is what we highlighted in our latest annual report, where we explained that if all of these companies were to be listed at some point in time, that alone could add INR 150 trillion in market cap, which in turn is a very big opportunity for all our businesses. This, apart from financialization of savings is a megatrend, which we think will continue to serve as a tailwind for all our businesses.

Our focus in the interim continues to increase share of our fee-based and trail-based revenues, and this will be driven by the asset management business, the private wealth business, the distribution and the lending book growth.

Turning to the broader numbers. During the quarter, we have crossed a major milestone by servicing more than 13.6 million customers, comprising 8.6 million plus unique mutual fund portfolios and 5 million plus unique broking accounts.

Our assets under advice crossed INR 6.5 lakh crores, growing by 28% year-on-year. Annual recurring revenues as a percentage of net revenue now stands at 52% during the first quarter. Our fee-based revenue contribution to total revenues increased to 44%.

Net worth increased by 28% year-on-year to INR 12,537 crores. ROE stands at 48% for the first quarter. Our decadal net worth has compounded at 24% after paying out dividends consistently and after doing 3 buybacks and our decadal average return on equity is over 22%.

Turning now to the segmental performance, starting with the Wealth Management business, which comprises of our retail broking, distribution and retail lending book NII. Our broking business continues to retain its leadership as a full-service broker.

Our cash broking volumes, ADTO, at INR 3,179 crores in Q1 FY '26 implies a cash volume market share of a robust 7.1%. Our F&O premium market share stood at 7.9%. Total ADTO market share stands at 7.5%. We believe we are the largest broker in the cash segment.

Over a long-term trend, our broking revenue contribution to total segmental revenues declined almost half from over 60% back in FY '21 to just about 34% in 1Q FY '26. This happened due to greater focus on growing our distribution business, reflected in net flows, which increased many fold from about INR 3,000 crores -- to about INR 3,000 crores in the first quarter of this financial year.

Consequently, the distribution book grew by 34% compounded from about INR 11,000 crores back in March '21 to almost INR 38,000 crores in June '25. And the contribution to total revenues from segment increased from 12% back in FY '21 to 24% in the first quarter of this year.

We intend to further increase the revenue share of the distribution business within our overall Wealth Management business and believe that the share of broking revenues will continue to diminish as a proportion of the overall Wealth Management business, like we've seen in our global counterparts over the last several years. The third part of the Wealth Management business is the NII, which grew by 12% year-on-year due to improvement in spreads.

Turning to our Asset and Private Wealth business. This comprises of 3 businesses: the Asset Management business, the Private Wealth Management business as well as the private equity real estate business.

AMC business continued its momentum with market share gains driven by continued strong investment performance. As mentioned earlier, we crossed a milestone of INR 1.5 lakh crores of equity AUM. Coupled with increasing distribution presence, gross flows in the first quarter witnessed a growth of 60% year-on-year to INR 14,568 crores.

Our current AUM stands at INR 1.51 lakh crores, which compares with an average AUM of INR 1.35 lakh crores in the first quarter and an average AUM of INR 1 lakh crores for the last fiscal. So we stand at over 50% higher AUM as we speak compared to the average of last year.

We believe that continued strong market shares, both in the mutual fund and the alternate segment, closing in of the product gaps should all serve as a strong driver to our profit growth in the coming quarters as well.

We've also made inroads into the private credit segment with the appointment of leadership there. We should be launching our own private credit fund in the second half of this year. And we believe that over the next decade, we will have many more products in the credit part of the alternate space as well.

The net flows of the Asset Management business grew from INR 5,300 crores in the first quarter to INR 8,500 crores in the current quarter. 92% of the AUM outperformed their respective benchmarks. We added 14 lakh SIPs in the first quarter. Our SIP flows in the first quarter stands at INR 3,437 crores. Happy to report that our monthly run rate of SIPs for the month of June crossed INR 1,200 crores. Our SIP book stands at over INR 26,000 crores as of June '25.

Alternate AUM also registered a strong growth at almost 30% to INR 33,810 crores. Contribution of AMC in total profits of MOFSL has risen meaningfully in the last 2 years. And based on the current trends, we believe that this year also should mark a substantial increase in that share.

Our PE business is amongst the very few domestic PE business, with strong IRR across all the 4 funds that we have launched ever since our inception back in 2007. We also launched our fifth private equity fund with a target size of INR 8,000 crores and completed our first close in a short spell of less than 2 months, crossing 80% of the target fundraise. This is the fastest mobilization of funds done by this business.

We also announced the final close of our real estate Series 6. So happy to share with you that we are the only product in -- only player in this segment, which is at Series 6 of a real estate fund.

Private equity business currently has a fee-earning AUM of INR 10,185 crores. A substantial amount of carry, as we have guided in the past and explained in our earnings PPT, will be realized at the fund close in the near future.

With the launch of private credit vertical, we now address a higher TAM of customers for alternate funds. This will also accelerate the scale-up of the business in the next 5 years as existing products raise larger sums of capital in every subsequent series and new product launches increase our bouquet of offerings.

Private Wealth business momentum also continued to be quite strong on top of a very strong FY '25 that we had reported. In the first quarter, we had a top line growth of 53% with continued investments in manpower, our bottom line growth was a robust 49%.

Our UHNI and family office propositions position us well to emerge as a leading player in the private wealth management space over the next 2 to 3 years' time. This is supported by experienced leadership as well as strong group synergies.

Our current relationship manager base is at 615, and we expect improvement in the RM productivity as only 33% of our RMs have a vintage of over 3 years. The share of Private Wealth business increased both in FY '25 as well as in the first quarter. We expect this trend of faster growth led by higher RM base, more comprehensive proposition straddling UHNI as well as the HNI segments and several new offerings to continue going forward and expect the share of private wealth in our total profits to also rise in the coming quarters and years.

Turning to our capital market business. This comprises of the institutional equities and the investment banking business. During the first quarter, we reported the highest-ever revenues for this business on the back of strong deal flows in the previous quarters and strong execution during the current quarter.

The IE business continues to increase research coverage as its fulcrum for the group. We have a strong team of 150-plus employees in this business. The coverage of the research team is at 320 companies across 25 sectors, staging 73% of the market cap, and we service nearly 900 domestic and overseas institutional clients.

FY '25 was a very strong year for the investment banking business, with doubling of revenues, and that momentum has continued into the first quarter. We completed 16 deals during the quarter, cumulative issue size of INR 30,000 crores, and our fees delivered a robust 89% growth year-on-year.

Our IB business was ranked #3 in number of IPOs executed, #5 in terms of the amount of IPOs, value of IPOs. This is a sharp improvement from rank 12 and rank 21, respectively, in the last year.

We continue to top the QIP league tables for the first quarter in terms of number of issues. As you know, we were #1 in FY '25 as well. We've strengthened our team over the past few quarters across both of these businesses and continue to increase our research coverage in IE, and our IB deal pipeline is the most robust that we've seen ever.

Turning to our housing finance business, we crossed the milestone of INR 5,000 crores AUM, up by 22%, led by sales RM force increasing from 1,430 RMs -- to 1,430 RMs, which is up by 50%, which in turn led to disbursement growth of 57% to nearly INR 400 crores during the quarter.

Our gross and net NPA stands at 1.2% and 0.6%, respectively. We expect housing finance AUM to double in the next 2 to 3 years' time. Our business has a strong capital adequacy ratio and low leverage, giving us enough growth levers without any external equity capital dependency.

Turning to treasury book. Our total investments, including alternatives, grew to INR 8,853 crores, up by 26% year-on-year. This book has delivered a robust ex IRR compounded return of over 20% since inception. And including reinvestment of cash flows, treasury investments have grown by 43% compounded over the last decade, implying it's up by more than 30x during the course of the last -- implying it's up by more than 50x over the course of the last decade.

We expect similar multiplier impact on the current book over the next decade, given the strong ROE of the operating businesses, a clearly defined payout policy on our operating profits and expected investment IRR.

To conclude, MOFSL's net worth has grown nearly 10x between March 2015 and June '25 to INR 12,537 crores, led by average return on equity of over 22%, average payout on operating profits of nearly 20%. We expect similar multiple over the next decade on the starting net worth due to the unique twin business model, which is explained once again in our earnings PPT.

We are strengthening all the 5Ts: technology, talent, training, trust and thinking big. Runway for growth is immense with strong double-digit growth expected in each of our businesses. Market leaders in many of our businesses are about 5 to 10x our profits and AUM. We are focused on outgrowing the markets in each of these businesses, implying a strong and a big runway for growth for the group.

I will now open the floor for Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

A great set of performance, I mean, across most of the segments, yet I will kind of try to focus somewhere, I mean, I have kind of some bit of concern. So one, of course, I mean, your -- this wealth management performance is, I would say, good as well. But there -- of course, there has been a shift. I mean your distribution efforts are paying off and distribution has made up for anything that was kind of lost towards the brokerage or transaction revenue.

Now here, given the kind of your pivot over the last few years more towards going more towards a holistic wealth management for the mass affluent than really looking for transaction, is this direction -- I mean, directional shift with this transactional or broking revenue going down and distribution continue to go inch up, will it continue? Or was -- I mean, kind of a slowdown in the transactional or brokerage revenue in this quarter gone by is more a market-driven phenomena. So that's question one.

Second is on, again, housing finance. I mean, in the past, you have stated that your strategy going forward. But importantly, again, the business this quarter seems to be not on very, very strong footing, some bit of an increase in credit cost and also some asset quality concerns are emerging. So what sort of happening there? And what is the kind of, I would say, the strategic path ahead for that business?

And thirdly, as we sort of speak based on whatever the kind of a pipeline, how is the year looking forward for the capital markets segment, particularly from a deal perspective? Because that is one, I mean, segment where typically, a lot of revenues are kind of transactional in nature and there is volatility. So some bit of a directional guidance on that deal pipeline will help us in terms of kind of estimating the numbers.

[Navin Agarwal, executive]

Avinash, thank you for all your questions. Let me answer them in the reverse order. Turning to the -- starting with the capital markets business. We've seen a record performance in the last year. First quarter of this year has started on a very, very strong note. The second quarter execution in the market with Motilal Oswal logos is quite publicly available. I think there are 4 IPOs closing in a space of 2 weeks' time that we are managing. The deal pipeline on the QIP front, we continue to be the leader. So given the pipeline, I have no reason to believe that the coming quarters will be any weaker than the first quarter that we've reported, which has itself been a very robust quarter. So that's on the capital markets business.

I'll come to the first question, and then Ajay is online, he can probably add as well. The trend of rising distribution income is something that we called out almost over 5 years back, and we have been sharing this metric year after year and quarter after quarter with you. The cross-sell ratios continue to remain quite low. And there's an annuity nature of buildup of the distribution business unlike the transaction business. So higher cross-sell. And we had explained and I'll double-click on that just for 1 minute. We now have a separate head of third-party products. Below him, he has 600-plus -- 600 to 700 members strong team with regional heads. So rather than the existing broking RMs cross-selling third-party products, we now have dedicated team supplementing or supporting them. And with the advent of account aggregator, I would only like to believe that this cross-sell ratio can multiply from here. There's a lot for us to learn from the global counterparts, but suffice it to say that this is a long runway.

The other part that you must also not ignore is the NII part of the business, which has also been rising. And we believe that we are quite under-indexed as far as the MTF book is concerned compared to our own market share in the futures and options as well as the cash market, which stands at 7.5%. So we are focused on that part also, and that is set to grow.

We've explained that the broking business is hinged on greater retail participation, which we believe still can grow 3, 4x from here over the next couple of decades. And so the runway there, again, is strong. So all 3 parts have a strong runway, but we would like to believe that both distribution and NII can outgrow the broking business in the coming years.

Ajay -- you talked about the first quarter strong distribution income. I highlighted during our fourth quarter con call, and I repeat that the distribution income will have seasonality. As you know, the fourth quarter is the lumpiest on the insurance side. As far as some of the other line items in the distribution business is concerned, they too could be lumpy on a quarter-on-quarter basis. The most steady part is obviously the trail income, which is -- which only moves along with the mark-to-market and the net new money that we add to the distribution book, which stands at nearly INR 40,000 crores right now. So those are the various elements. If Ajay has any points, I'll request him to add as well.

[Ajay Menon, executive]

I think you covered it in detail. As we know that the distribution AUM is still very small in the overall scheme of things when you look at our [ CAGR ] holding in our DP, we have got more than INR 3 lakh crore of assets. AUM is just around INR 40,000 crores. So a huge room to grow from here.

At the same time, we look at our broking business, [Technical Difficulty] the overall presence, we have a huge scope and we are invested on to the broking. But that doesn't stop us from building on the distribution AUM. And in the last few years, we have consistently seen consistent growth in the AUM business in a big way.

And as Navin said, we are investing in a big way in terms of people, in terms of technology and in terms of building an overall [ trial-based ] book, which will be over and above the broking business growth, which we are building on to. So that will be a continuous growth on both sides. That is how we are looking at it.

[Unknown Executive]

Avinash, on the housing finance question, so over the last few years, we have built very, very robust asset quality in this business. So if you look at the new book that we have built over the last few years, which is almost about 70% of our AUM, the GNPA number on that book is only 0.6%, while overall GNPA number on a sequential basis is a bit increased, but that's also because of the very seasonal nature of collections in quarter 1 of every year, where you will see marginal slippage being higher. But our net NPA provisions coverage ratio stands pretty strong. And we expect meaningful recovery of this GNPA number in the coming quarters. Overall, I think 1 plus, 30 plus, all metrics if you compare on a Y-o-Y basis, all are lower. So that's how we are looking at the overall asset quality.

[Navin Agarwal, executive]

Does this answer your question, Avinash?

[Avinash Singh, analyst]

Yes, yes.

[Operator]

The next question is from Ashish Kumar from Ampersand Capital Investment Advisors.

[Ashish Kumar, analyst]

I have 2 questions. First is there has been a sharp increase in our employee expenses this quarter, 34% Y-o-Y and 23% Q-o-Q. So what is the reason for this? And how we should look at it in the coming quarters?

And second question is in the Asset and Private Wealth Management, we have seen strong growth on Y-o-Y basis. But on Q-o-Q, it is kind of muted. So if you can give some more color on this, it would be helpful.

[Unknown Executive]

Coming to the people cost number, overall, if you look at last 18 months, we have been continuously adding more senior talent across each of our business because the senior hires over the last 18 months has been -- almost 450-plus senior talent has been added.

Secondly, it also includes the impact of the increment which has happened on a Y-o-Y basis because quarter 1 generally reflects the full impact of the increments that we have effected from April 1 of this year.

And overall, given the strong performance of this quarter, the variable amount has been provided for to fully capture the growth for this quarter. That is why you would see that there is a marginal increase in the people cost to revenue ratio. But our margins have been very strong and stable at a 50% profit margin if you look at the overall last financial year and even the quarter 1 of this year.

Coming to the wealth management.

[Navin Agarwal, executive]

Yes. If you see the -- there has been a very substantial ramp-up in the second half and the fourth quarter of last year. And so -- and usually also, as I mentioned, the fourth quarter is seasonally the strongest quarter for certain products. And so all of this has led to a very strong growth last year as well. And this year, again, we have a robust 50% top line and bottom line growth in this business.

We are seeing very strong tailwinds for this business and expect this business to continue to perform strongly in the coming quarters of the year as well. And as I guided, this business is very under-indexed in terms of the headroom to grow. If you benchmark us to the market leader, you will see that there is almost 8 to 10x multiplication that is possible in this business. And that's why we have been investing. I have guided in the past that almost 10% EBITDA margin sacrifices on the back of strong RM hiring, where only 33% of the relationship manager base is of a vintage greater than 3 years. So we see all of this continuing to serve as strong tailwinds, the headroom as well as the investments that we are making in the RM base, and the growth will continue to be strong in the coming quarters as well.

[Unknown Executive]

Also on the question of the revenue to the AUM on our Asset and Private Wealth business, quarter 4 included the carry income also. And that is one of the reasons where you will see that quarter 1 will not have that impact. So the revenue increase, in comparison to the AUM, will be lesser in quarter 1 because of the impact of the carry income included in quarter 4 in our asset and private wealth business, both put together.

[Ashish Kumar, analyst]

Just on the employee expense, if you can give some guidance for full year in terms of either percentage of sales or growth, it would be helpful.

[Navin Agarwal, executive]

As far as the percentage of the sales is concerned, you should assume that it will be at a similar level as the last year for [ FY '26 ].

[Operator]

The next question is from Hitesh Arora from Abakkus Asset Managers.

[Hitesh Arora, analyst]

I had just wanted to get a better understanding on the PWM business. So we've talked about the relationship vintage, employee expenses, et cetera. But just on the client side, if you could just elaborate what is happening? How many relationships have we expanded, matured, things like that or any -- some interesting transactions that maybe we may be working on like we executed last year, if you could just elaborate a bit on that so that -- just to improve our understanding of the business of the PWM side?

[Ashish Shanker, executive]

This is Ashish here. So from a PWM side, last year, same time, if you see we had about 14,000 families onboarded, 13,400 to be precise. And today, we have about 16,600 families. So we've seen strong growth in terms of addition of families, and this is across the board, whether it is HNI families as well as ultra HNI and family offices.

And like Navin mentioned earlier, we are still quite underpenetrated across the board. So in the HNI business, it's more about coverage, adding talent across the country. Similarly, in the ultra HNI family office business, we are very, very underpenetrated in terms of our share of wallet. So there is a lot of headroom for growth in both businesses within private wealth.

As far as the products are concerned, we are seeing increasing interest and offtake of alternate products in the ultra HNI and family office segment. Similarly, in the HNI segment, we are seeing a lot of interest in solutions. I mean we are -- we currently have our Delphi set of products, which is essentially a fund of funds and fee-based solutions for HNIs. So in both areas, we are continuing to see interest. And in the alternatives, we are also seeing a lot of interest in unlisted transactions, and there is a steady flow now.

[Operator]

Next question is from Lalit Deo from Equirus Securities.

[Lalit Deo, analyst]

Congratulations on a good set of numbers. Sir, 2, 3 questions. One, in the distribution income, both on the wealth management as well as on the private wealth management side. So there seems to be a sequential uptick in the transactional revenues -- transactional distribution revenues. So just wanted to understand what would have drive those revenues in this way? And could you also give us a rough breakup like how much would be coming from, which are the key drivers for the same?

Second was on the AMC business. So in this particular quarter, there was -- the flows on the PE and RE segments were around INR 300 crores. But in the presentation, it's mentioned that in July, we have closed a fund. So how should one look at the overall net sales in the alternative side of the AMC business for the full year?

And lastly, on the broking side. So in the F&O side, like the -- it seems like that the gross brokerage levels have -- were muted in this particular quarter on a sequential basis. So what would have led to those reasons? And how are you seeing the trend -- recent trends in the coming -- in the month of June and July? Those are the 3 questions.

[Unknown Executive]

Yes. Coming to the first question on the distribution revenues, so distribution revenues across our wealth management business as well as private wealth business in quarter 1 includes also revenues on account of secondary market transactions on the private securities as well as alternatives. So it's a function of those revenues, which, in fact, we had even guided over the last few quarters that there is a lot of focus and the alternative space, including co-investment as well as secondary transactions is upticking. And that is one of the reasons where you will see the impact of those steps that we took to increase the revenues in quarter 1 as well.

Coming to the second question on the flows -- alternative flows. So while quarter 1 includes INR 300 crores of net flows, but you would have seen the announcement that we already made that our fifth growth fund on our private equity side, which is India Excellence -- India Business Excellence Fund #5, with a target size of INR 8,000 crores. So we have done the first closing at 80% of the target size. So you would see the impact of the flows coming in the quarter 2 of this financial year. And also, we have closed our Series 6 of our real estate fund, the flows of which will also get reflected in the quarter 2 of this year. So you would see 2 new closings as well as, as Navin guided that on the private credit side, we will have -- in H2 of this financial year, we'll do the first closing of our private credit fund. So that is how we'll read the flows of current financial year.

[Navin Agarwal, executive]

Lalit, just to summarize versus the INR 11,000 crore opening AUM for this business, you will see nearly all of the INR 8,000 crore Series 5 private equity funds getting added. You will see a part of the INR 2,000 crore Series 6 real estate fund getting added. And you will also see a part of the private credit fund getting added. So this should be one of the strongest years of growth, both in AUM as well as recurring fee income for this business. You should see nearly a doubling of AUM in the current financial year.

[Unknown Executive]

On the third question on the margin for the quarter, our profit margin for the quarter is at 49%, which if you look at sequentially, it will look like a dip of 200 basis points. But however, as earlier explained in the call, we look at largely margins of almost the last financial year to be maintained in the current financial year as well. And the dip is mainly because of the people cost, which I explained earlier in the call in terms of the increase in the revenues and the corresponding increase in the cost thereof.

[Lalit Deo, analyst]

Sure, sir. Just on the F&O side, actually, the last question...

[Unknown Executive]

On the F&O side of the business, the -- so if you look at our focus has been on the cash side of the business. Our cash -- the F&O pie of the business is less than 40% in our overall mix. And our cash volumes growth has happened in the market as well as our market share has gone up. So bulk of the brokerage growth has come actually from the cash brokerage for us because of the increased focus on the cash side of the business over the last many years.

On the F&O side, the increase has happened in the market share as well as in terms of the revenue, but that is marginally lower than the overall cash mix because of our advisory-driven business on the cash side.

[Unknown Executive]

And just to add to that, on the F&O side, we had the full quarter impact of the expiries being reduced. So on the overall market also, the volumes have come down because of the overall number of expiries coming down. So that impact is seen.

[Unknown Executive]

That's right.

[Operator]

Next question is from Dipanjan Ghosh from Citigroup.

[Dipanjan Ghosh, analyst]

So a few questions from my side. First, going back to this employee expense number. And if I were to just kind of take out 2 of the businesses, which is private wealth and capital markets, it seems that the growth in employee expense on a sequential basis has been highest in these 2 segments. And obviously, when you look at the market competitiveness in terms of new talent acquisition or talent poaching that is going on in the industry, it probably seems that it is also highest in these 2 segments coincidentally. So I just wanted to get a more medium to long-term picture in terms of how do you see the competitive pressure shaping up in this segment? Obviously, a lot of new players are coming up, capital-backed players are coming up. So is talent acquisition or is talent retention going to put a significant pressure on the employee expense for, let's say, foreseeable future out there?

The second question is going to be on the transactional revenue part. Now obviously, you mentioned that there are a lot of unlisted market deals are happening. Obviously, your numbers have also stacked up well over the last few quarters, especially this quarter also. I just want to get an idea of 2 things. One is what would be your product sort of rejection rate? Or how do you really source the product and kind of vet the product before really pitching it to the customer?

And second is in terms of the pipeline of the product side or lumpy deals out there, can you give some color specific to your company?

And last question is on the capital markets business side. Any color on the quantum of deal pipeline that you have? I mean, let's say, if it's 100% of that were to fructify over the next, let's say, 1 to 2 years, what sort of uptick in revenues can we expect on the fee income side of the capital markets business?

[Navin Agarwal, executive]

So basically, as far as the employee cost pressures and the talent war in the private wealth and the capital markets business, Dipanjan, you're absolutely right. At Motilal Oswal, we have been very sensible about benchmarking them to how we pay to the current workforce also. And so yes -- but yes, the offers that we have made in the last 12 months have been at a much higher level compared to what we have done in the past. And I don't see this abating because the size of the opportunity itself is expanding very rapidly in both of these businesses.

And so as you see, our overall margins are at, I would say, the industry best in terms of the composition of the businesses that we have. If you compare us with the industry, which is at 49% margins, you rarely find anybody at that kind of a -- so basically, margins are very robust. And we try to sensibly participate in terms of growing the team sizes across both of these businesses. So that is the first point.

As far as the visibility of the -- as far as the pipeline is concerned, I articulated that the pipeline -- the deal pipeline visibility of the capital markets business is very robust, that the second quarter at least should be at least as good as the first quarter. But making any long-term projections for this business is very difficult because it all depends. The execution is entirely a function of the markets. And if markets were to remain reasonable or robust, then the pipeline at least is in place to continue to have robust execution in 3Q as well as 4Q.

I mean our book-to-bill ratio for this business is in excess of 2 to 3x based on the revenues that we reported last year. And that's why you're seeing near doubling of revenues in the first quarter and continued strong growth in the second quarter as well.

As far as the underwriting is concerned, see, the group has a very strong history of underwriting both in public markets as well as private markets. The vintage of our asset management company is over 2 decades, and the vintage of the private market practice is just a tad under 2 decades. And both the businesses have delivered a stellar track record of mid-20s or early 20s kind of a return over this long period of nearly 2 decades. So that is innate to the group. And rejection ratios are obviously, as a consequence, quite high. Pipeline, again, it's for -- this is quite strong. And so the coming quarters should continue to be reasonably strong. We don't call out any numbers of pipeline for this, but I think the visibility of continued strong growth in the rest of the year is also reasonable.

[Lalit Deo, analyst]

Got it. If I can just squeeze in one small question on the private wealth or maybe a little bit on the flows from the PMS and AIF on the -- or the real estate on the asset management side also. I just want to get some color on this customer, especially in the PWM ex of, let's say, your private client group, which you used to have more focus on the HNI and UHNI. Would this be more of generational wealth sort of personnel? Or this would be more tilted towards, let's say, professionals or business people? I mean I just wanted to get some sense of how is the sensitivity of primary markets or monetization events to incremental flows versus, let's say, how much of it is more organic client tapping or new client acquisition?

[Unknown Executive]

Yes. So within the private wealth segment, your question was ex of PCG, I mean, essentially, the color of clients is either in the HNI segment, professionals, or in the ultra HNI to family office, it's basically business promoters. So right from SMEs, MSMEs, all the way going up to large listed company promoters, that would be the primary target segment.

In terms of what drives growth, I mean, there is obviously a lot of organic growth because these clients keep adding to their wealth every year. And the current portfolio also keeps growing. But as far as the larger growth in the ultra HNI and family office segment is concerned, yes, monetization plays a very large role. And the intensity there has only been increasing, as you can see from all these IPOs plus private equity transactions, sellout. And I'm just alluding to what Navin said, if the market remains stable or robust, I think we continue to see very, very high growth in that segment.

So there is an organic growth of maybe 20%, 25%, but the extra growth and our ambition to get to the leadership position will get determined by the kind of share that we can get in the incremental monetization events. I hope that answers your question.

[Operator]

The next question is from Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

Congrats on a good set of numbers. A couple of questions from my side. Actually, I wanted to understand a little bit more on the product strategy in wealth and private wealth. So observations like say, for example, in the wealth business, I see that the broking income has come back very strongly while vis-à-vis that in private wealth, I think that pace of recovery is slower. So I just wanted to understand what would be a differentiated strategy between the 2 segments in a period when the market was recovering. How do you address that? That is the first question.

And second is in terms of the distribution income for the quarter. Of course, I believe that there is an impact because of seasonalities from insurance business. But if you could give some breakup in the revenue growth from what comes from MF or other nonseasonal channels and what comes from other segments which help us to understand this better? Yes, sir, that's from my side.

[Unknown Executive]

We don't break down this. There's already so many layers of breakdown across all our businesses that we are publishing. And as I mentioned to you, this could be volatile on a quarter-on-quarter basis. But on an annual basis, we see these trends to be improving. But as far as the difference in the trend of broking business across our Wealth Management and Private Wealth Management, as you know, broking is the primary product or the largest product for the wealth management business. There's also a lot more MTF that is supported there, which has probably less salient to market volatility or basically the continuity of that income is greater. Use of that is far less in our Private Wealth business, and it's also not a primary product. But we believe that these could be lead lags that may last for a quarter or 2. But eventually, both the businesses largely move in a similar direction like we've seen in the past few years.

[Swarnabha Mukherjee, analyst]

Right, sir. Understood. I appreciate the fact that you don't want to give further cuts into the distribution income. But just wanted to understand, I mean, between, say, last year to this year, the growth between, say, 1Q '25 and 1Q '26, the growth has been phenomenal over this period. So I just wanted to understand that as far as the nonseasonal bucket also, I mean, has the growth been equally stronger or better? Some color would be helpful to get for us to forecast maybe some ballpark.

[Unknown Executive]

So actually, I had explained this in great detail last quarter also, but I'll repeat. The only new kid on the block really is secondaries and bonds as well as equities. That is something that we were under-indexed on fixed income and under-indexed on secondaries. I think both of those have seen an improvement over the course of the last 3 quarters. And so if you see second half of last year and first quarter of this year, you've seen improvement. My guess is we are still under-indexed on both. And so the trend could continue to be strong in that part of the distribution income.

[Operator]

The next question is from Pooja Jain from Trinetra Asset Managers.

[Pooja Jain, analyst]

I just wanted to know a little on the technological side. What progress have you made on digital front like in both broking as well as wealth? Are you looking for any AI-based advisory or any hyperpersonalization? And I also wanted to know the percentage of account openings and transactions are now happening through your mobile apps versus assisted channels. What is the percentage?

[Motilal Oswal, executive]

Motilal here. So a huge amount of focus on technological initiatives are happening, and that's why our online transactions must be about 75% to 80% overall. Although we must be the only unique player who have both the models, which is the digital model, they have got advisory assisted model where advisers can advise, but transactions still can happen online or offline based on the clients' convenience. So we have -- I think the next version of the RISE app, which is also live. Account aggregator is live. We have a lot of tools being done through AI. I think next couple of quarters, you will see a lot of new tools where the advisory -- actually voice and tech combination will happen and the clients will have the choice. Any data points, [ Shalibhadra ], do you have any data other than that what you are saying?

[Shalibhadra Shah, executive]

Yes. So our tech spends are also rising year-on-year. And overall, if you look at tech spend, they are almost about 4.5% to 5% of our revenues. And even this financial year, we have a very healthy budget of almost about INR 250 crores to be spent on the entire tech. So that's how we continue to expand our digital initiatives and especially on data science, as Mr. Oswal said, especially on the AI side, we are investing in a lot of tools across our advisory business as well as our trading.

[Pooja Jain, analyst]

Okay. Just one more question. What's the current status and strategy for international fund product?

[Unknown Executive]

We've already run out of capacity a few years back. We were the market leader. We were the first pioneers to launch NASDAQ and S&P 500 and bring them to India. But given the FX reserves, which have been falling, I think, nearly 2 years back, 2.5 years back, this product stopped seeing any fresh inflows because we capped out our limit that has been set by the regulator.

Having said that, some of our products are now available on GIFT City, and it's only been a quarter, and we've seen very strong traction there. And we think that is one area that can -- so basically, global funds flowing into India through GIFT City is something that may happen.

On the private wealth side, also, we are trying to use a similar route for deployment of funds globally. But this is not a major mover for us currently. All of this, put together, is incrementally, from a delta perspective, tending to 0 for us.

[Operator]

The next question is from Rohan Advant from Prad Capital.

[Rohan Advant, analyst]

Most of my questions have been answered. Sir, just on the NII front, if I look at quarter-on-quarter, our NII has been lower. And even on a Y-o-Y basis, the growth seems to be lower. And I thought you would benefit also from the drop in interest rates on your NII. So was our average book maybe lower than the closing book? And what is the reason for this? And how would you guide for the rest of the year on this front?

[Shalibhadra Shah, executive]

Yes. So I believe you are talking about our -- the MTF book on the wealth management business overall. So I think Y-o-Y, yes, the book has been lower by almost about 9%, 10%. And that is one of the reasons you would see that the NIIs are lower. However, the spreads have marginally bettered Y-o-Y because our cost of funds have also come down. So cost of funds have actually fallen by 40 basis on a Q-o-Q front and 80 basis on a Y-o-Y front. So you will see the impact of the spread benefit also coming over next few quarters. However, sequentially, the book has grown. Sequentially, if you look at the book, it is up almost 20%, in line with the growth in the cash volumes and our market share growth as well. And you would see the sequential uptick of the NIIs coming in the coming quarters for the full impact of the growth, which has happened in the quarter 1 of this year.

[Rohan Advant, analyst]

Understood. Sir, so what you are saying is that the closing book has grown, but the average book has not grown because when I see NII this quarter versus last quarter, it is a lower number even under wealth management.

[Shalibhadra Shah, executive]

Yes, that's right because bulk of the book growth has started from the month of June. And that is why you'll see that the average impact of that is yet to fully come in the NII.

[Operator]

[Operator Instructions] Next question is from [ Shashi Kapoor from Doladher Capital ].

[Unknown Analyst]

Yes. The question is, as you mentioned that we are on an uptrend of the liquidity is doing fine in markets, and markets are also doing fine. How we are set for the next 2, 3 years? What we are doing to ensure that profits are -- we don't get much impacted as we have got impacted historically due to market correction.

[Navin Agarwal, executive]

So Shashi, as you may have noticed, the annuity and the trail bearing part of the revenues systematically has been rising to now a majority of the overall revenues. On the other hand, you've also seen that within the broking business, the Wall Street, which you are alluding to, that part of the business is also now down within the retail broking business to 1/3 of the overall revenues, correct? The share of third-party distribution and NII, the share of asset management, private wealth and alternates private equity real estate business have all risen materially. So all of this, we believe -- and our market shares in all our businesses in the last 3 years and last 5 years have gone up.

I explained to you that across -- in my opening remarks that across all the businesses that we are in, the runway to just catch up with the leader is 5 to 7x. And each of those businesses are growing at very strong double-digit rates. So we believe that this whole mega trend of financialization of savings, the huge gap between us and the market leader and our focused execution to close in that gap, increase the trail revenues, increase the annuity share of revenues, increase the salience of asset management, private wealth businesses, I think all of this give us the confidence that the 10-year compounded profit growth of 30% that we've reported, all the tailwinds for the future are no different from the last decade. Does that answer your question?

[Unknown Analyst]

Yes.

[Operator]

Due to time constraints, we'll take that as the last question. I would now like to hand the conference over to Mr. Shalibhadra Shah for closing comments.

[Shalibhadra Shah, executive]

On behalf of Motilal Oswal Financial Services, I would like to thank every participant for attending the Q1 FY '26 con call. In case if you have any further queries, please do get in touch with our Investor Relations desk. Thank you, and have a good day.

[Operator]

Thank you very much. On behalf of Motilal Oswal Financial Services, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.