Motilal Oswal Financial Services Limited (MOTILALOFS) Q4 FY23 Earnings Concall Transcript

Motilal Oswal Financial Services Limited (NSE:MOTILALOFS) Q4 FY23 Earnings Concall dated Apr. 28, 2023.

Corporate Participants:

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

Shalibhadra Shah — Chief Financial Officer

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

Raamdeo Agrawal — Chairman

Analysts:

Yashodhan Nerurkar — PPFAS Mutual Fund — Analyst

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Vinod Chandra Agarwal — Private Investor — Analyst

Pujan Shah — Congruence Advisers — Analyst

Kajal Gandhi — ICICI Securities — Analyst

Ansuman Deb — ICICI Securities — Analyst

Sahej Mittal — HDFC Securities — Analyst

Druvesh Pujara — Premji Invest — Analyst

Deepak Sonawane — Haitong Securities — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen, welcome to the Q4 FY ’23 Earnings Conference Call for Motilal Oswal Financial Services Limited. We have with us today Mr. Raamdeo Agrawal, Chairman; Mr. Motilal Oswal, Managing Director; Mr. Navin Agarwal, Director and CEO, AMC; Mr. Ajay Menon, CEO, Broking; Mr. Ashish Shanker, CEO, Wealth Management; Mr. Shalibhadra Shah, Chief Financial Officer; Mr. Chetan Parmar, Head, Investor Relations. [Operator Instructions] Please note that this conference is being recorded.

I would now like to invite Mr. Navin Agarwal to make his opening remarks. Thank you and over to you, sir.

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

Good afternoon, everybody. It’s my pleasure to welcome all of you once again to the Motilal Oswal Financial Services con-call for the year ending March 2023. I’ll start by highlighting a few achievements for the year.

During the year, we had the highest-ever profit after-tax for our capital markets business at INR505 crores. The asset under management for our asset management, wealth management, private-equity businesses collectively crossed INR1,00000 crore mark. Within that, the wealth business had the highest-ever net sales at about INR5,810 crores. And the housing finance business once again, after quite a few years, crossed a disbursement mark of INR1,000 crores during the financial year.

Let me now take you through some of the highlights of operation and then financial performance. So our operating profit after tax for the year, March ’23 grew by 6% to INR879 crores and for the quarter was at INR233 crores. This comprised of capital market business profit of INR505 crores for the year and INR135 crores for the fourth quarter. Asset and wealth businesses earned INR258 crore PAT for the year and INR66 crores for the fourth quarter, while the housing finance business reported a profit after tax of INR133 crores for the year and INR31.5 crores for the fourth quarter. As a result, the consolidated net worth of the Group stood at INR6,250 crores, net debt was at INR6,630 crores. Our gross debt equity stood at 1.6 times, and excluding the home finance business, the debt equity stood at 1.2 times. We declared a final dividend of INR3 per share, and including the final dividend, the total dividend for the year stands at INR10 per share. Effectively, our dividend payout policy, including the buyback, for the last couple of years stands at about 28%.

Turning now to individual businesses, starting with the capital market business. This business reported revenues of INR745 crores for the fourth quarter, which is up by 8% and INR2,833 crores for the full year, which is up by 11%. Profit stood at INR135 crores in the fourth quarter led by healthy volume growth of 10% quarter-on-quarter and almost 2.6 times on a year-on year basis, and improvement in retail F&O market share was about 1.16%, 116 basis points on a year-on-year basis.

The retail broking business acquired 6.5 lakh clients during the year ending March, 2023 following traction in online channels. The NSE active clients stood at 8.1 lakh as of the end of the year and we now have an improved rank Number 8 in terms of active clients. Our distribution AUM grew to INR21,300 crores, up by 17% year-on-year. The distribution part of the retail broking business saw net sales of INR1,280 crores and, given the 55 lakh client base of this business, we see improved room or headroom for cross-sell.

Insurance premium was an area of focus, this business reported INR120 crore premium income, which is up by 120% year-on-year. The currency business market share improved by 700 [Phonetic] bps year-on-year and another 360 bps quarter-on-quarter to 18.5%. We added over 1,100 franchisees during the year, taking our total franchisee count to a tad over 8,000.

The institutional equities team continues to report leading ranks in the Asiamoney broker poll 2022 as well with Number 1 rank in corporate access and Number 2 ranks in sales and execution.

Turning to the asset and wealth businesses, I highlighted that we crossed the INR1,00000 crore AUM mark across these businesses. The net yield for these businesses stood at 75 bps on this INR1,00000-crore-plus AUM. The asset management business reported revenues of INR131 crores for the fourth quarter and INR555 [Phonetic] crores for the full year. The mutual fund AUM stood at just a tad under INR30,000 crores. We’ve seen turnaround in the active mutual fund scheme performances where five out of seven schemes are ranked in top quartile. This has led to an improvement in gross sales and a decline in redemptions.

We added 91,000 new SIP client in the fourth quarter, up by nearly 40% quarter-on-quarter. The SIP gross [Phonetic] market share improved by 30 basis points quarter-on-quarter. Our share of alternate assets comprising of PMS, AIF stands at about 35%.

As far as the private equity business is concerned, the fee earning AUM crossed INR10,000 crores. In fourth quarter, the revenues grew by 18% year-on-year to INR55 crores and grew by 36% year-on-year for the full year to INR177 crores. The wealth management business AUM grew by 51% year-on-year to INR52,000 crores. We had strong net sales of INR5,800 crores, up by 8% year-on-year. Our revenues grew by 37% year-on-year to INR65.7 crores for the fourth quarter and by 14% year-on-year for the full year to INR223 crores.

We had a gross relationship manager addition of 63 in the last 12 months, taking the total count to 182 RM’s. We’ll continue to invest in this business by further RM additions.

The overall asset and wealth business revenue stood at INR252 crores in the fourth quarter and INR955 crores for the full year. Our profit stood at INR66 crores for the fourth quarter and INR258 crores for the full year.

Turning to the housing finance business. We reported full year profit of INR133 crores, up by 44% year-on-year and a fourth quarter profit of INR31.5 crores. Our NII’s grew by 9% year-on-year, NIM’s expanded by 37 bps to 7.7%, disbursements grew by 57% year-on-year to a little over INR1,000 crores. We believe that the runway for growth in disbursements in this business is meaningful.

Our yield on advances stood at 13.9% for the full year. Cost of funds were down 24 basis points to 8%, and as a result, the spreads expanded by 21 bps to 5.9%. Our collection efficiency continued to see improvement, coupled with declining bounce rates. Our gross NPA’s at the end of the year stood at 1.1%, led by a 101% collection efficiency in the fourth quarter. We increased our rates by 50 basis points, effective 1 April, 2023, and have cumulatively raised rates by 100 bps till date. The net gearing for the business still is quite low at 2.2 times and our Tier-1 capital adequacy for this business remains robust at 50%.

Turning to our fund-based activities. We have total investments including unrealized gains of INR4,630 crores as of the end of the year. Within this, the total equity investments including alternate funds is at INR4,280 crores and the cumulative ex IRR, since we started making these investments, stand at about 16%.

To sum up, we’ve delivered reasonable performance in the year ending March, 2023, despite market headwinds. The retail broking business continued to consolidate its market position by adding 1,100 franchisees and improving its market share through the digital initiatives and also benefiting from market expansion, particularly on that F&O side and industry consolidation that is underway. We continue to focus on our strategy to diversify our businesses towards more linear sources of revenues. Asset and wealth businesses crossed a INR1,00000 crore AUM. Asset management business saw improvement in performance. Our wealth management business saw strong relationship manager addition. Private equity business saw the largest ever fund raise. Housing business saw improvement in disbursements and profitability. And we believe that each of these businesses have meaningful headroom to grow in the coming years.

Thank you. And we are now open to Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Yash Nerurkar from PPFAS Mutual Fund. Please go ahead.

Yashodhan Nerurkar — PPFAS Mutual Fund — Analyst

Yeah, hi. Thanks for the opportunity. So firstly, generally, the trends of what’s happening in the broking business, I mean we have seen a year of doing rapid acquisitions in the number of accounts which are opened. So going forward, what do you think it would be because, are the actual numbers looking a bit lower or what would be the criteria for us?

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

Yash, we are not able to hear you. Are you using the speaker?

Operator

Management members, the line of Yash has dropped from the question queue. We move on to our next question which is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Hi, good afternoon. On the broking business, which is the large business in margin funding business, are you seeing margin pressures because we’ve seen that interest income has grown far lower than the interest expense? And would you think that this business, given the fact that there was some volatility in the markets, will find at least the lending book will be difficult to grow? So that’s question number one. And question number two, I’m just trying to reconcile in the housing finance business, the AUM doesn’t seem to have grown so much though the disbursements seem to have grown. Is it more back ended? Are higher interest rates causing any slowdown in growth? And how do you see this business going forward? That’s it from my side. Thanks.

Shalibhadra Shah — Chief Financial Officer

Yeah, hi, Vivek. So on your first question on the broking business, the overall margin funding book, actually if you see Y-o-Y, this book has grown almost 50% for us. So one is the book size has grown much faster. And secondly, in terms of the overall NIM’s, the borrowings are dependent on short-term sources in case of margin funding, given the very nature of this lending. So the interest rates have got repriced, but if we see, the impact of that is almost 100 basis on the NIM’s in the current financial year, but you have seen more growth in this year to compensate for that. So overall, net to net, the NII is up 25% on this book. And on the housing finance side, if you see the overall disbursements for this year, we had INR1,000 crores of disbursements. We crossed this mark this financial year and overall, there is a prepayment rate of about 18% to 19% of the AUM and that is also because of one of the major reason also the CLSS subsidy, which came to us [Technical Issues], bulk of the subsidy came to us which has resulted in impact reduction. And quarter four has been a strong disbursement growth quarter, we did almost INR360 crores of disbursements in Q4. And that is how you see the overall interest income getting amortized.

Operator

Mr. Ramakrishnan, do you have any more questions? Ladies and gentlemen, since there is no response, we move on to our next question. Our next question comes from the line of Vinod Chandra Agarwal [Phonetic], an Individual investor. Please go ahead.

Vinod Chandra Agarwal — Private Investor — Analyst

Yeah, thanks for the opportunity, first. And I have a few questions about brokerage business and a couple of questions on the PE/RE acquisition. So on the brokerage side, first, I just want to understand like in the last con-call, we said like our cost of acquisition of client is around INR2,500 per client and I think we have added around 6.5 lakhs clients. So just want to understand the breakup of like how this [Technical Issues] around INR160 crores stand. So how do we like stand on, example like, reversal or something kind of — so where do we find out in the Annual Report [Technical Issues]. Like under which line item we can [Technical Issues]?

Shalibhadra Shah — Chief Financial Officer

So you’re talking about the acquisition cost, which is incurred? So that line item comes under the other expenses under marketing and brand promotion costs in the Annual Report.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, and is there — will you be able to provide any rough bifurcation or estimate bifurcation of like how much you spend on a brokerage reversal or some like direct acquisition cost kind of?

Shalibhadra Shah — Chief Financial Officer

So whatever we — the cost for lead generations are fully classified under that head along with the other marketing costs. So overall run rate of this cost has been to the tune of around INR4 crores a month in this financial year.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, okay. And now another question is like, we have around, let’s say, 8 lakh clients as active clients. So — and we acquired around 6.5 lakhs clients in the current year itself and last year, we acquired 8.8 lakhs clients. So generally what — like, as an individual, what I feel is that, generally the — whenever a person opens an account, at least he will trade from one or two trade to repay because that’s why he goes [Phonetic] to open the account and trade. So if I, let’s say, something like around 8 lakhs [Phonetic], so is it something like only 2 lakhs clients were from the last year or the previous year, which were active and only like some amounts of — can you give like how much of these clients are active from the current year and how much clients are active from the previous year?

Shalibhadra Shah — Chief Financial Officer

So, the current year activation ratio has been 26% on the new clients that we have acquired and the overall activation ratio stands around [Technical Issues]. Yeah, overall acquisition ratio has actually been in line with how industry has performed. Lot of actually active clients have reduced across this. And if you look at our numbers, relatively, we have been better in terms of the overall reduction.

Operator

Mr. Agarwal. Can you please unmute your line if you’d like to ask a question? Since there is no response from. Mr. Agarwal, [Operator Instructions]. We move on to our next question that is from Pujan Shah from Congruence Advisers. Please go ahead.

Pujan Shah — Congruence Advisers — Analyst

Hello. Am I audible?

Operator

Yes sir, Mr. Shah, you are.

Pujan Shah — Congruence Advisers — Analyst

Yeah, yeah, okay, okay, thank you. The first question would be on the home finance. So as we are saying that we are diversifying, the borrowing profile has been reduced the cost by 20 bps. So what are the steps we are coming on to the — for the future planning so that — like what are the estimation of the reduction of the cost in coming — for FY ’24 specifically, because the yield are becoming stable and now the — I think the interest rate will be start also declining as per the — what the market is estimating? So are we estimating the spread to widen up due to the cost of reduction — reduction of cost or we will have some improvement in yield as well?

Shalibhadra Shah — Chief Financial Officer

Yeah, as far as the overall cost of funds for FY ’23 is concerned, the cost is lower because on account of two reasons, one is we have improvement in the NHB borrowing base in our overall source of funds. And secondly, the overall impact of the MCLR repricing has also averaged out and bulk of that would also come in, in the current financial year. So to that extent, so on an 8% cost of fund base, currently, the cost of funds stands at eight quarter [Phonetic] as far as the opening cost of funds is concerned for FY ’23-]24 and we expect the cost of fund to marginally rise from here for the balance MCLR impacts. However, we have also improved our lending rates by 100 basis points in two tranches, starting January 1 of this year and April 1 of the current financial year. So we believe we will be able to maintain the overall NIM’s and trends in the business.

Pujan Shah — Congruence Advisers — Analyst

Sir, to the rate question, so if we are increasing the yield in the home finance side, just wanted to know what are the competitive advantages where the customer are driving to, especially when the yield are so high on the home finance? And, I wanted to also ask that, what is the average ticket size we are providing loan to the people?

Shalibhadra Shah — Chief Financial Officer

The average ticket size is INR9 lakhs for us in this business. As far as the competitive advantages are concerned, we have — so one is certainly our rates are very competitive in the market, given that our ability to raise low-cost resources. And secondly, in terms of TAT, We have a very fast TAT of disbursements as far as the customer is concerned and third is our brand as well, given our brand presence across so many cities as a Group. We have that edge where our brand stand strong across pan India customers in this segment as well.

Pujan Shah — Congruence Advisers — Analyst

Okay. And last question would be how will be the cost-to-income trajectory for FY ’24 and FY ’25, because there is some bit of increase being seen from like for the FY ’23? So what are you eyeing on for that?

Shalibhadra Shah — Chief Financial Officer

Cost-to-income would marginally be higher, given that we are actually investing in talent in this business. Even in the current financial year, we added. employees and this would continue over next couple of years where we would keep investing in the talent in this business. So to that extent, cost to revenue growth. However, given the overall improvement in the growth, the NIM’s will continue to be stable.

Pujan Shah — Congruence Advisers — Analyst

Okay, thank you so much, sir.

Shalibhadra Shah — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Hi, sorry, this is Vivek again, our line got cut when you were answering my question on home loan growth. I’m really sorry, could you answer that again? And on the broking business, do you see — I mean where will the growth come from? I asked about the net interest margin, but you’ve grown your book significantly, the margins you said have come down, but how does the scale-up happen from here on? Thank you.

Shalibhadra Shah — Chief Financial Officer

Well, as far as the housing finance business is concerned, so on the disbursements, the overall disbursement was INR1,000 crores for this year. However, we had repayments and prepayments of almost 19% of our opening assets. That is also on account of the CLSS subsidy that we have received from the government businesses [Phonetic], because bulk of the subsidy came in this financial year for us, and the growth in quarter four was very strong where we did INR360 crores of disbursements. So that is one of the reason where you will see the overall improvement in the interest income is lower because in line with our average loan book growth.

On the broking business side, the overall NII, I explained that is up 24% and with the overall merits in this business where apart from brokerage, we are also strengthening the overall other revenue pie in the business in terms of the distribution of revenues as well, so we see a meaningful improvement in our distribution revenues, our lending book revenues and advisory-related revenues in this business apart from the overall brokerage growth. Brokerage-wise also, derivative volumes have been growing very strong if you see year-on-year. And even year-on-year, we are able to improve our derivative market share by almost 100 basis in this business. So we see that it is showing traction despite the market cycles being down or up. We see a good amount of derivative pie getting more linear in terms of our revenue growth.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Sir, thank you very much for answering my question again. Wish you the best and apologies again.

Shalibhadra Shah — Chief Financial Officer

Thank you, Vivek. No worries.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Kajal From ICICI Securities. Please go ahead.

Kajal Gandhi — ICICI Securities — Analyst

Hello. Hi, sir. So couple of questions…

Shalibhadra Shah — Chief Financial Officer

Hi, Kajal.

Kajal Gandhi — ICICI Securities — Analyst

Yeah, hi, sir. So I just wanted to first note that we have seen such a sharp surge even Q-o-Q basis on the F&O volume but the overall brokerage revenue has been sequentially lower. So is it the cash substitution which F&O has done or what will be broad breakup of cash and F&O in this brokerage revenue? That’s one. Second, I wanted to understand if you can give more clarity on this MTM total debt has come, which is from which asset class has been, how much? And third, if we can also get — like if we have seen, [Indecipherable] has given some very good disclosures in this quarter which are like they are giving how much a customer, when he comes first in the first 12 months of his trade, what is the kind of revenue he will give. So if he gives 100 in year one, what is the year two revenue of that customer? Like, is it 60%, 80%? Maybe something like that, if we can get. Those are the three questions. Thank you.

Shalibhadra Shah — Chief Financial Officer

Sure. Ajay, you want to take the first question? Ajay, you’re there? Yeah, I think line is — coming to the first question on the cash and for us, market volumes were down almost 17% on the cash side of our business and that is also one of the reason where the overall brokerage revenues were down almost 6% on a quarter-on-quarter basis. Secondly, even though there’s lot of focus on — in quarter four on the distribution business and on the lending business and that is also one of the reason where we’ve seen, in fact, the other revenue pie also growing in quarter four of this year. Coming to the mark-to-market question, mark-to-market, actually, if you take a look on our opening investment book where overall return is almost 3%. So while the Q was flat, still our book has delivered opening 3% mark-to-market again. And what you see is also blend of expenses on account of our real estate investments that we have done of interest cost in that mark-to-market book and that is the reason where you see the net income of that book at INR50 crore. If you could just repeat your third question?

Kajal Gandhi — ICICI Securities — Analyst

Third question was more of a disclosure kind of thing. That was like, if suppose a customer comes to you — is becoming a customer in year one, what is the kind of revenue he may be giving? So suppose it is100, so what do we see the trend in year two, year three of that customer? So 100, then next year it becomes 60%, 80% or 120%? What will be the trend in year two? What will be the year three of that same customer? So they have made cohorts of customers and that was a disclosure.

Shalibhadra Shah — Chief Financial Officer

Yeah, so there are multiple channels in our business and definitely we can separately put out that data, if you require that detail, yeah.

Kajal Gandhi — ICICI Securities — Analyst

Okay. Sir, I did not get clarity on the first question, like brokerage, when we are saying F&O cash has declined I understand. But then how much of the overall brokerage share will be cash and F&O broadly?

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

I’ll answer that Shali.

Shalibhadra Shah — Chief Financial Officer

Yeah.

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

So overall, the brokerage, if you look at it, the share from the cash market will be around 45% and F&O will be around 55% of the overall data. And to that extent, about overall — if you look at overall market itself in this last quarter, it was comparatively down and the overall volumes itself in the cash market is down. We are trying to see to it that we are able to maintain the revenue to the extent possible from the F&O side comparatively to on the cash side. And to that extent, we have been able to make [Technical Issues] with around 4%, 5%, downside. That’s the whole thing for the quarter. At the same time, the distribution revenues have gone up comparatively very well in the quarter — last quarter in — across different products, including insurance.

Kajal Gandhi — ICICI Securities — Analyst

Okay. Sir, for the second question, which is that what are these expenses that you said was [Technical Issues].

Shalibhadra Shah — Chief Financial Officer

Yeah, so actually that includes mainly the interest costs on the real estate developer, NCDs that we actually bear out on our balance sheet and then gradually down-sell it to our wealth clients. So what you see is while we have the interest costs on that, but bulk of the gains comes when these NCDs are actually realized as redemption premium. So to that extent, you’ll see a bump-up of the interest costs which will come in our — the treasury book.

Kajal Gandhi — ICICI Securities — Analyst

Okay, thank you very much.

Shalibhadra Shah — Chief Financial Officer

Okay, thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Yash Nerurkar from PPFAS Mutual Funds. Please go ahead.

Yashodhan Nerurkar — PPFAS Mutual Fund — Analyst

Yeah, hi, am I audible now?

Shalibhadra Shah — Chief Financial Officer

Yeah, yes, you’re audible.

Yashodhan Nerurkar — PPFAS Mutual Fund — Analyst

Yeah. So, firstly, I wanted to ask about the broking business. I mean in the past two years, we have seen the kind of activity which has happened. I mean the account grew at a rapid rate and we saw that shareholders [Phonetic] of the brokers increase. So going-forward, we have seen some slowdown in [Technical Issues].

Operator

Management members, the line of Yash Nerurkar has just dropped from the question queue. We move on to our next question that is from Ansuman Deb from ICICI Securities. Please go ahead.

Ansuman Deb — ICICI Securities — Analyst

Yeah, hi. Good afternoon, and thanks for the opportunity. My question was regarding outlook on broking share. Like we did a good improvement in this year, but quarter four, I think — what has been the trend in quarter four, especially, and what is the outlook in terms of broking share? And secondly, there is a dip in the MF AUM in the wealth management. So if you can you give some clarity on that.

Shalibhadra Shah — Chief Financial Officer

Ajay, you’ll take the first question?

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

Yeah. So I’ll take the first one. As far as the broking business is concerned, as you must have seen the last year, overall, across brokers, the active clients have come down in a big way. As far as we are concerned, we are very clearly focusing on the quality client acquisition and that is the benefit for us in the overall market share growth in the F&O. And we see that this trend can improve even going further, although the focus is on quality accounts and the overall ARPU of the customers. So our focus will be on getting quality acquisitions in terms of cash as well as F&O. At the same time, the MTF book is increasing in a good way and we can build the overall AUM based on the MTF book also. Parallelly, the distribution side of the business, there’s huge scope to grow the business there. And last year, again, we had some good traction on the distribution business. So all in all, the — overall on the business side, we feel that we will be able to build traction. But as you all know, the market scenarios can always have [Indecipherable]. So to that extent, we’ll be always careful on how to build the business going forward.

Ansuman Deb — ICICI Securities — Analyst

Yeah, and one follow-up on that, in the sense that when the markets are not doing so well, I’m saying that the distribution and the lending, are you seeing relatively better traction, which can lead to a stable performance irrespective of cycle? So has there been a dichotomy between how the broking revenues have spanned out and how this distribution and lending streams have performed?

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

So as far as the market dynamics are concerned, the good thing is that because of the options market growing in such a big way, there is some amount of stability in the business numbers when it comes to the market being negative or sideways because options are increasing. To that extend, the brokerage is relatively stable even in a downturn market. In the margin funding book, we surely see lot of scope because of the regulation, we’re seeing that the things are becoming easier to fund on the MTF side and where there is opportunity, because we see that the [Indecipherable] and volumes should come back and there is opportunity for MTF will increase for us. And distribution, anyhow, penetration has been comparatively lower and we see the potential to grow the distribution book independent of the broking. So that, anyway, year-on-year, we are bringing the growth there. And we see no reason why the growth cannot improve — keep on improving at least over the next two, there years.

Ansuman Deb — ICICI Securities — Analyst

Understood. And on the PMS side?

Shalibhadra Shah — Chief Financial Officer

Yeah, so if you look at the AUM for wealth in PMS and AIF, because we count both together, it’s gone up from INR8,400 crores to INR8,600 crores. Also, if you see the alternative space, the AUM has gone up from INR3,700 crores to INR4,400 crores. So overall, the AUM has grown in the three categories.

Ansuman Deb — ICICI Securities — Analyst

Right. So any specific to PMS would be relevant, do you think?

Shalibhadra Shah — Chief Financial Officer

So the choice of products keeps changing depending on the client preferences. So AIF AUM has gone up, but PMS sales have been flat to down.

Ansuman Deb — ICICI Securities — Analyst

Understood. Thanks a lot. Thank you.

Operator

Thank you. Our next question comes from the line of Sahej Mittal from HDFC Securities. Please go ahead.

Sahej Mittal — HDFC Securities — Analyst

Hi, good afternoon, all. Thanks for the opportunity. Sir, so first is on the broking business. So what’s your outlook for FY ’24 now, given that the cash volumes are already down 20% versus the kind of growth which we had in the derivatives segment? So do you think that in FY ’24, there’ll be some respite in the cash segment and what is your outlook for the derivative segment? That is one.

Raamdeo Agrawal — Chairman

See — this is Raamdeo Agrawal. The way markets are — with my experience, the cash volume is typically for much smaller companies, medium and small cap. And that is also a function of when those companies will start doing well, then the economy is in second or third year of expansion. So now this year, ’23-’24 is the second year of expansion. My sense is that, as head-on effect, all the medium and small-cap companies will start seeing the benefit of the recovery of the economy and hence nominal [Phonetic] earnings profile build up 25%, 30% for those smaller companies. I’m hearing some of the companies, 100% to 200% kind of earning growth. Lot of ideas are coming on the debt. I think now the mood will be there to do a lot of cash trading, because these companies will not be typically listed in the options and futures. My sense is that in second half or this year itself, the cash volume should pick up, definitely led by medium and small cap.

Sahej Mittal — HDFC Securities — Analyst

And sustainability of derivative volumes?

Shalibhadra Shah — Chief Financial Officer

Yeah, that is sustained. Yeah, so see, overall F&O volumes and despite this large financial year also, the market has actually grown and in fact doubled in terms of the volumes, because more the volatility, more the actual growth in the F&O volumes. That’s what is the case. So first half of the year, we are projecting more likely that F&O volume will still continue to keep growing. And once we see the cash volume as well so we’ll see the impact of both of these coming in.

Sahej Mittal — HDFC Securities — Analyst

Right, right. Second is, in the asset management business, if you could split out the net loss across segments, mutual funds, PMS and AIF?

Shalibhadra Shah — Chief Financial Officer

You’re talking of the quarter four of this year, right?

Sahej Mittal — HDFC Securities — Analyst

Yes, yes, quarter four, yes.

Shalibhadra Shah — Chief Financial Officer

So quarter four-wise, so net sales in mutual fund was INR5.2 billion positive. And overall, [Indecipherable]-wise, it was INR2.2 billion of outflows.

Sahej Mittal — HDFC Securities — Analyst

And within INR2.2 billion, the split between — AIF was positive, so PMS would be more than INR2.2 billion.

Shalibhadra Shah — Chief Financial Officer

Yes, that’s right.

Sahej Mittal — HDFC Securities — Analyst

Got it. And the outlook on the wealth management business, given that we’ve been investing quite heavily in the wealth management business. So what’s the [Technical Issues] for the next two years maybe?

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

Yeah, so the size of opportunity is large for wealth management and we continue to invest in three areas. Basically, we continue to invest in hiring good wealth managers. We continue to invest in growing our client franchise. And thirdly, we continue to invest in the products and platforms. So these are the three basic growth drivers. We believe that, in the last three years, the growth can continue into the future as well.

Sahej Mittal — HDFC Securities — Analyst

Right. And any targeted operating margins for this business?

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

So currently, we continue to invest in this business so margins could be probably at the same level going, and then they would improve because as the mix of the vintage of RM’s improve because as we continue to invest in talent, the RM’s in the zero to one category tend to go up and as the RM vintage matures, you will start seeing margins improvement.

Sahej Mittal — HDFC Securities — Analyst

Got it, got it. Thanks, and all the best, yeah.

Operator

Thank you. Our next question comes from the line of Druvesh Pujara [Phonetic] from Premji Invest. Please go ahead.

Druvesh Pujara — Premji Invest — Analyst

Yeah, hi, thanks for the opportunity. So I have two questions, first on the NSE client base which gone down to 8 lakh from 9 lakh sequentially. I’m not sure whether you already touched upon it, I joined the call late. So what explains that? And how do you see this in the next two years in terms of additions in the broking side? And the second question is on the float income. So I think the — if I understand it correctly, the FY ’22 float income was INR129 crore. So what that number would be in FY ’23 and how do you see that number moving forward with the observing regulations coming in place? And also if you can qualitatively explain the moving parts of the float income pie. So yeah, those are my two questions and thanks.

Shalibhadra Shah — Chief Financial Officer

Yeah. Ajay, you’ll take the first question?

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

Yeah. So as far as the active client is concerned, surely you have seen across the industry, there is a fall in the active client base in a very big way. Compared to that, the fall at our end is comparatively lower. But to that extent, we are only looking at hiring more and more quality account. So we feel that this active client ratio will only improve in our case as we look forward to hiring more and more clients which are from a higher-margin base. So actually we have seen in the last two, three years the client base has increased in a very big way across the industry. So there can be consolidation in this number, if you see the trend in the market and the overall market scenario. So — but we are very clearly focused on the quality accounts which we see that it will be keep on — which we can keep on improving.

Shalibhadra Shah — Chief Financial Officer

Yeah, on the second question, the float income for FY ’23 is approximately INR150 crores number. And in terms of the new regulation, so one is, of course, we are talking of the ESMA [Phonetic] regulation. So at this juncture the ESMA mechanism is actually optional in nature and it will be difficult to comment on the broad contours at this juncture. So — but given that we have larger amount of our customers in mass affluent segment, the impact of that would be minimal on us and even the UPI [Phonetic] block size — ticket size is pretty less at INR5 lakh. So the mass affluent clients typically don’t much get fit into this account. Secondly, in terms of the circular which had come on 29 March and even on 25 April, as far as the overall upstreaming of the client funds, so there would be a marginal impact of approximately INR5 crores per annum on the up, because upstreaming of the bank guarantees is not permitted. So while we have a very strong capitalized balance sheet and overall, we see this impact to be very minimal on us at this juncture.

Druvesh Pujara — Premji Invest — Analyst

Okay, so do we expect this like INR150 crores broadly to stay as it is in FY ’24 apart from the INR5 crore which you mentioned or do you see that marginally going down, if not going up?

Shalibhadra Shah — Chief Financial Officer

It may marginally go up somewhere because the overall — the current overall — the rates are going up and the overall creditors are also financed [Phonetic] in the system.

Druvesh Pujara — Premji Invest — Analyst

Got it, thanks.

Shalibhadra Shah — Chief Financial Officer

Yeah. Thank you.

Operator

Thank you. Our next question comes from the line of Deepak Sonawane from Haitong Securities. Please go ahead.

Deepak Sonawane — Haitong Securities — Analyst

Yeah, hi, sir. Am I audible?

Shalibhadra Shah — Chief Financial Officer

Yes, you’re audible, Deepak.

Deepak Sonawane — Haitong Securities — Analyst

Yeah, yeah, yeah. Thank you for the opportunity. I mean, I have only one question that is with broking industry. Especially for us, if you see that over the last four, five quarters or even if you compare FY ’23 versus FY ’22, we have seen a very sharp drop in our gross sale, right, for core broking grossing. I understand that — I mean, within that, cash segment at least has been holding up really well. But for F&O, we have seen a very sharp drop in gross sales. I mean, that could be materially impacted by very high growth in volumes. But I just wanted to understand whether there is a voluntary drop in yields, I mean, just because of pressure from — I mean competitive pressure or else retaining those plans within the MOFS — I mean boundary. So can you just comment on this?

Shalibhadra Shah — Chief Financial Officer

So on the yields actually if you see, the drop is only on the options side of the business. So for us, the other segments have not seen any drop in the yields over many quarters. And options is again, for us, we are one of the highest actives in the industry. So we’ve seen some bit of reduction because one is market volumes are growing and not only — apart from that, we are also improving our market share. So you are having that double positive earning, so there is moderation in the overall option yields which has happened. It’s more across the industry, given the low rates which is there. But still we are one of the highest revenue for orders in the industry.

Deepak Sonawane — Haitong Securities — Analyst

Sir, but just, if you could comment — I mean this moderation in option is — any — I mean any number that you could comment. I mean in BPAs, how it could have been deeper, I mean dropped for us, I mean voluntarily over the last one year.

Shalibhadra Shah — Chief Financial Officer

Overall, there would be moderation of almost I think one-third In the overall yields, which could be the number. I can’t specifically call-out that number, but that’s the broad number.

Deepak Sonawane — Haitong Securities — Analyst

Okay, thank you, sir.

Shalibhadra Shah — Chief Financial Officer

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Kajal G from ICICI Securities. Please go ahead.

Kajal Gandhi — ICICI Securities — Analyst

Hello, sir, my question is related to upstreaming, it’s already answered. Thank you.

Shalibhadra Shah — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Vinod Chandra Agarwal, an Individual Investor. Please go ahead.

Vinod Chandra Agarwal — Private Investor — Analyst

Thank you, sir. Last time my line was disconnected, I was not able to hear. So I will continue with the question. My question was, I was trying to understand over client activation. So in that regard, sir, you said like we have 55 lakhs of clients, [Technical Issues] 35 lakhs clients. So can you just try to like help me understand that where is this gap of 20 lakhs clients?

Shalibhadra Shah — Chief Financial Officer

Yeah, so those 20 lakh customers that actually are customers of our asset management business predominantly on our mutual funds and alternate assets.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, and [Indecipherable] like active clients sits within the 35 lakhs clients, right, not from that?

Shalibhadra Shah — Chief Financial Officer

Yes, that’s right.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, okay. And, if you do the distribution business as well, so this brokerage is only considered in the activation or the distribution is also considered as an active client? I mean, [Technical Issues] the capital market directly, but they might be doing the investment in the mutual funds and other distribution products. So if we consider using the distribution product also, what could be the like approach towards our client activation ratio out of 35 lakh clients?

Shalibhadra Shah — Chief Financial Officer

So this 8 lakh number is actually the NSE active clients, it only pertains to the brokerage business. On the distribution business, the overall penetration is 16% cross-sell. So on this 35 lakh client base, we have actually cross-sold to 16% of the total customers, at least, one distribution product.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, so does it mean like an overall, if we consider mix both of them and consider, what could be the number? I mean, 15% if we take, then only, it takes like around 4 lakh, 5 lakh clients additionally? Is that the right number?

Ajay Menon — Chief Executive Officer, Retail Broking and Distribution

There’ll be an overlap on those customers who are doing — broking customers will also be doing the distribution business. So it will not be exactly the additional customers to that extent. It’d be some 10% that might be separate who have not done broking.

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

Yeah, and like the broking business, if the customer does not trade in a year it is inactive, right? In the wealth management business or in the asset management business, if you’re earning trail income or annuity income, they don’t have to trade. So actually 100% of AMC clients and 100% of wealth clients and 100% of private equity clients and real-estate clients and all those distribution clients are active, because the firm’s earning revenues every single day. So I think all the clients in all the other businesses are — I mean there is no concept of active ratios only prevalent in the broking business, because there’s a possibility that you may earn your revenues if there is no trade by that client in the year. So I mean, you have the actual broking numbers, all other clients of all of those businesses are actually active clients.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay. So after that inactive client, can you give us some sense like what you understand, like, how an advisor would have talked to them who are inactive other than like — like totally inactive, I would say, not on the distribution side and not on the capital market side, both the side they’re not doing anything? Whatever advisor [Technical Issues] even though [Technical Issues] they’re not interested or they are finding somewhere else in a lower advisory or fees or something, kind of — what is our sense on that part? I mean I’m just trying to understand the effectiveness of our advisors. That’s what I’m just trying to understand.

Navin Agarwal — Managing Director & Chief Executive Officer, Asset Management

Yeah, yeah. It could be a combination of all that you mentioned, and it could be to do with the circumstances of the client themselves. So really it could be due to competition. So we don’t have really a breakdown of the various reasons why a client is inactive. All I can tell you is that, both physical as well as digital channels within the Group are active to try and improve the activity ratio. So I mean, there is a budget and an expense and resource allocation to improve the activation of the client across all the businesses and to increase the cross-sell as well. But really the attribution of various reasons is not very clear.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, no problem. And on the — our MTF book size, I feel like it’s in a [Indecipherable] for the broking industry itself from the — moving from the brokerage industry it will be — this lending book. [Indecipherable]. So that looks like a good basis and just give your understanding or your reason to — that MTF book size. You can just like tell us like how many number of clients are currently using MTF and what is their medium ticket size, like lending ticket size.

Shalibhadra Shah — Chief Financial Officer

As far as the total client size, there’s almost 8,000 customers in this MTF book.

Vinod Chandra Agarwal — Private Investor — Analyst

And average or a medium ticket size to them?

Shalibhadra Shah — Chief Financial Officer

Almost, it will be INR50 lakh to INR1 crore.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, great. So that seems like an HNI client, right, most of them?

Shalibhadra Shah — Chief Financial Officer

Yeah. That’s right.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay, thanks. And one more on this real estate fund side. So I think we were about to launch this fund. So when will we see that next fund is going to come?

Shalibhadra Shah — Chief Financial Officer

Can you just repeat the question?

Vinod Chandra Agarwal — Private Investor — Analyst

Yeah, on the real estate fund side, I think the fixed funds, we were supposed to launch like this year or this quarter. So is it on track to launch in this [Technical Issues]?

Shalibhadra Shah — Chief Financial Officer

Yes, yes, we will be launching this fixed fund in the course of this financial year. It is — we’ve already got the SEBI permissions to float this fund and the team is working on the broad contours of that.

Vinod Chandra Agarwal — Private Investor — Analyst

Okay. And this real estate fund is mostly like a debt product or it is equity product?

Shalibhadra Shah — Chief Financial Officer

It is investment in the developers as far as funding the landscape transactions or finance transactions that we do in our real estate fund management business.

Operator

Thank you. Ladies and gentlemen, as there are no further questions from participants, I now hand the conference over to Mr. Shalibhadra Shah for closing comments.

Shalibhadra Shah — Chief Financial Officer

On behalf of Motilal Oswal Financial Services, I would like to thank every investor participant to attend this conference call for Q4 FY ’23. In case of any further queries, please do get in touch with me or our Investors Relations. Thank you and have a good day.

Operator

[Operator Closing Remark]