July 24, 2024
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“And capital markets we have the investment bank and institutional equities which is also playing on the India story in a sense. Wealth is playing on the household side and capital market one part like an investment bank is also playing on the promoter side which coincides with our ultra-high net worth business and institutional equities is playing on the India growth story,” says Ashish Kehair, MD & CEO, Nuvama Wealth Management.
Let us talk about your business model how you are differentiating it. I saw roughly 2,000 crores is what you are clocking right now on the revenue front. What is the break-up and which revenues, which segment is the highest growth right now and contributor also to your top line?
Ashish Kehair: Predominantly we look at ourselves as a wealth management company. So, today, 60% to 65% comes from between wealth and asset management and that is a segment which is our focus segment for us. Then, we also have some capital market business, we have custody clearing business. Custody clearing is also growing well.
And capital markets we have the investment bank and institutional equities which is also playing on the India story in a sense. Wealth is playing on the household side and capital market one part like an investment bank is also playing on the promoter side which coincides with our ultra-high net worth business and institutional equities is playing on the India growth story. So, in a sense the whole play is on India but focus is on wealth and we use all the other pieces to sort of support the wealth management and its growth.

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So, the fear or one of the concerns when I talk to people is that the business model of a wealth management company is highly correlated with the stock market outlook. But when we actually look deeper the correlation on the upper side is relatively higher and the correlation on the downside, suppose we grew at a 12% to 15% CAGR on say markets for next five-six years, then what is the multiplier for your revenue growth, how much higher and if we actually go in a smaller sombre range on the downside how is the multiplier, how is that cushioned because of the diversified revenue mix?
Ashish Kehair: See, a simplistic way of looking at this is let us say if your equities were to grow by 15%, which is like a doubling in a five-year period, then you add the flows, new flows which come from the same clients, so that is about 8-9% a year, so that is about 24% and if you take debt growth let us say at 8% and new flows at 4-5% there, so that is about 12-15% and blended asset allocation of clients is say 50-50, then your assets are growing at around 20%.

So, if your markets in a sense is growing by 15, you can grow by 20. On the downside what happens for players who are in wealth management, they are slightly better protected, so as I keep saying that if you are only into broking, you are closest to stock market; if you are in traditional asset management which is your mutual funds where more than 90% of your profitability is driven from equities, you are slightly distant, next to broking; and if you are then wealth management, you are that, I mean the third one. So, your degree of separation is the farthest, but yes, all these players will be correlated to the stock market.

But is it fine to assume that if one were to play the economic growth story and capital market growth story, then perhaps the most risk adjusted way is to play the wealth management stock.
Ashish Kehair: Yes, absolutely. So, you will not get that super high beta also and at the downside you will be protected and in investing it is clear that if you protect yourself on the downsides more, upside takes care of itself.

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