The December quarter results present a mixed picture: whilst net sales grew 14.20% quarter-on-quarter to ₹2,111.66 crores, they registered only modest 5.93% year-on-year growth. More concerning is the company's operating margin compression, with operating profit margin (excluding other income) declining to 52.87% from the previous quarter's 45.61%, though improving from the exceptionally weak 23.72% recorded in Q4 FY25. The company's PAT margin of 27.08% reflects improvement from the prior quarter but remains below the robust margins achieved in earlier periods.
The results underscore the inherent volatility in Motilal Oswal's business model, heavily influenced by capital market activity and transaction volumes. The company's performance across its diversified segments—institutional equities, asset management, housing finance, and wealth management—remains susceptible to market sentiment and trading volumes, creating earnings unpredictability that has become increasingly evident over recent quarters.
Financial Performance: Recovery Amid Persistent Volatility
Motilal Oswal Financial Services' Q3 FY26 performance demonstrates a characteristic swing in quarterly earnings that has defined the company's recent trajectory. Net sales of ₹2,111.66 crores represent a 14.20% sequential improvement from Q2 FY26's ₹1,849.11 crores, yet this growth must be contextualised against the dramatic 32.44% quarter-on-quarter decline experienced in the previous period. The year-on-year comparison reveals tepid 5.93% growth, significantly underperforming the company's historical growth trajectory.
The operating profit margin (excluding other income) of 52.87% in Q3 FY26 shows substantial improvement from Q2 FY26's 45.61%, but the broader trend reveals concerning instability. The margin had peaked at 62.99% in Q1 FY26 before collapsing to 23.72% in Q4 FY25, highlighting the earnings volatility inherent in the capital markets business. This quarter's margin recovery suggests some stabilisation in business mix, though sustainability remains questionable given market-dependent revenue streams.
Interest costs rose to ₹336.38 crores in Q3 FY26 from ₹317.39 crores in the previous quarter, reflecting the company's continued reliance on borrowed funds to support its housing finance and loan against securities businesses. The net debt to equity ratio of 1.22 times indicates elevated leverage, typical for NBFCs but requiring careful monitoring given the cyclical nature of the capital markets business. Employee costs of ₹485.45 crores declined sequentially from ₹512.86 crores, suggesting some cost optimisation efforts, though the absolute levels remain substantial given the people-intensive nature of financial services.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 2,111.66 | +14.20% | 565.97 | +56.16% | 27.08% |
| Sep'25 | 1,849.11 | -32.44% | 362.42 | -68.81% | 19.69% |
| Jun'25 | 2,737.03 | +129.95% | 1,162.06 | -1894.13% | 42.34% |
| Mar'25 | 1,190.26 | -40.29% | -64.77 | -111.47% | -5.36% |
| Dec'24 | 1,993.42 | -29.84% | 564.52 | -49.60% | 28.49% |
| Sep'24 | 2,841.06 | +22.76% | 1,120.08 | +27.01% | 39.69% |
| Jun'24 | 2,314.31 | — | 881.89 | — | 38.45% |
The quality of earnings remains a concern, with the company's nine-month FY26 performance showing a 44.89% decline in profit after tax compared to the corresponding period last year. This deterioration, flagged in the financial trend analysis, suggests structural challenges beyond normal quarterly fluctuations. The tax rate volatility—ranging from 17.77% in Q1 FY26 to 28.28% in Q2 FY26 before settling at 24.35% in Q3 FY26—adds another layer of complexity to earnings predictability.
Capital Efficiency: Strong ROE Amid Leverage Concerns
Motilal Oswal's return on equity of 22.76% represents a significant strength, demonstrating efficient capital utilisation and profitable deployment of shareholder funds. This metric places the company favourably within its peer group and reflects management's ability to generate attractive returns despite the cyclical nature of the business. The ROE has been consistently robust, averaging above 22% over recent periods, which justifies the company's premium valuation relative to book value.
Leverage Dynamics: A Double-Edged Sword
The company's net debt to equity ratio of 1.22 times represents the lowest level in recent periods, indicating improved financial flexibility. However, this leverage remains elevated for a capital markets-focused NBFC and amplifies both returns and risks. With interest costs of ₹336.38 crores in Q3 FY26, the company's ability to service debt depends heavily on sustained revenue generation from volatile capital market activities. The housing finance and loan against securities businesses require continued access to wholesale funding markets, making the company vulnerable to liquidity conditions and interest rate movements.
The balance sheet reveals shareholder funds of ₹11,079.33 crores as of March 2025, supporting a book value per share of ₹184.84. Current liabilities of ₹23,675.98 crores reflect the company's extensive borrowing programme to fund lending operations, whilst investments of ₹8,850.64 crores represent proprietary trading positions and strategic stakes. The current assets of ₹13,746.99 crores declined substantially from ₹20,847.46 crores in the previous year, suggesting either business contraction or aggressive deployment of capital.
Cash flow generation presents another area of concern. Operating cash flow of ₹1,214 crores for FY25 represented a dramatic turnaround from the negative ₹349 crores in FY24, yet this improvement followed an even more severe negative ₹3,057 crores in FY23. The volatility in operating cash flows mirrors the earnings instability and raises questions about the sustainability of cash generation, particularly important for a leveraged financial services company requiring consistent liquidity to meet funding obligations.
Market Context: Navigating Choppy Capital Markets Waters
The capital markets industry has experienced significant turbulence over recent quarters, with fluctuating trading volumes, volatile market conditions, and shifting investor sentiment affecting transaction-based revenues. Motilal Oswal's diversified business model—spanning institutional equities, retail broking, asset management, wealth management, housing finance, and investment banking—provides some insulation from single-segment shocks, yet the company remains fundamentally exposed to overall market activity levels.
The company's institutional equities business, a key revenue driver, faces intense competition from both domestic and foreign brokerages, with commission rates under sustained pressure. The asset management segment operates in an increasingly crowded marketplace, whilst the housing finance business confronts rising interest rates and potential asset quality concerns. The private wealth management division, serving high-net-worth individuals, benefits from India's growing affluence but remains sensitive to market performance given the equity-heavy portfolios typically managed.
Industry Headwinds: Regulatory Scrutiny and Competition
The financial services sector faces heightened regulatory oversight, with the Securities and Exchange Board of India (SEBI) implementing stricter compliance requirements and the Reserve Bank of India maintaining vigilant supervision of NBFCs. Margin lending businesses like loan against securities require careful risk management, particularly during market corrections when collateral values decline rapidly. The company's ability to navigate this regulatory landscape whilst maintaining profitability will be crucial for sustained performance.
Competitive intensity in the capital markets space continues to escalate, with new-age digital brokers disrupting traditional business models through zero-commission trading and technology-driven customer acquisition. Established players like Motilal Oswal must invest substantially in technology infrastructure and digital capabilities to remain relevant, creating pressure on operating margins. The company's brand equity and long-standing relationships provide some competitive moat, yet the barriers to entry in many segments have diminished significantly.
Peer Comparison: Valuation Discount Reflects Concerns
Motilal Oswal's valuation metrics reveal a significant discount to peers, reflecting market scepticism about earnings quality and growth sustainability. The company trades at a price-to-earnings ratio of 22.27 times, substantially below peers such as HDFC AMC (36.26x), Nippon Life India (39.27x), and 360 ONE (38.34x). This valuation gap suggests the market assigns a lower quality multiple to Motilal Oswal's earnings, likely due to the higher volatility and cyclicality in its business model.
| Company | P/E Ratio | P/BV Ratio | ROE (%) | Dividend Yield | Debt to Equity |
|---|---|---|---|---|---|
| Motilal Oswal | 22.27 | 3.50 | 22.76% | 0.66% | 1.22 |
| HDFC AMC | 36.26 | 13.46 | 31.84% | 1.85% | 0.00 |
| Billionbrains | 57.02 | 14.14 | 0.0% | NA | 0.00 |
| Multi Comm. Exc. | 62.10 | 27.89 | 16.92% | 0.26% | 0.00 |
| Nippon Life Ind. | 39.27 | 11.96 | 26.06% | 2.30% | 0.02 |
| 360 ONE | 38.34 | 4.83 | 19.24% | 1.06% | 1.47 |
The price-to-book value ratio of 3.50 times appears reasonable given the company's 22.76% ROE, representing a lower premium compared to pure-play asset managers like HDFC AMC (13.46x P/BV) and Nippon Life India (11.96x P/BV). However, the comparison is complicated by Motilal Oswal's diversified business model, which includes capital-intensive lending operations alongside capital-light broking and asset management activities. The company's leverage of 1.22 times debt-to-equity distinguishes it from zero-debt peers, introducing additional risk that partially justifies the valuation discount.
Return on equity of 22.76% positions Motilal Oswal favourably within the peer group, exceeding 360 ONE (19.24%) and Multi Commodity Exchange (16.92%), though trailing HDFC AMC (31.84%) and Nippon Life India (26.06%). This strong ROE demonstrates effective capital deployment, yet the sustainability of these returns remains questionable given the recent earnings volatility. The dividend yield of 0.66% lags significantly behind peers, with the company retaining most earnings for business expansion rather than returning cash to shareholders.
Valuation Analysis: Premium Unjustified by Recent Performance
At the current market price of ₹738.00, Motilal Oswal Financial Services commands a market capitalisation of ₹44,784 crores, reflecting a premium to book value of 3.50 times. This valuation, whilst lower than historical peaks, appears stretched given the company's recent performance trajectory and earnings volatility. The stock trades at 22.27 times trailing twelve-month earnings, a multiple that seems generous for a business exhibiting flat to negative earnings growth over the past year.
The company's valuation grade has oscillated between "Expensive" and "Very Expensive" over recent months, currently assessed as "Very Expensive" by proprietary metrics. This classification reflects the disconnect between current valuations and fundamental performance, with the stock price failing to adjust adequately to deteriorating earnings trends. The enterprise value to EBITDA multiple of 13.57 times and EV to sales of 6.81 times further underscore the premium valuation, particularly concerning for a cyclical financial services business.
The stock's distance from its 52-week high of ₹1,097.00 stands at 32.73%, indicating substantial correction from peak levels, yet this decline appears justified by deteriorating fundamentals rather than representing an attractive entry point. The 52-week low of ₹487.85 provides some downside reference, with the current price 51.28% above that trough. However, given the earnings trajectory and quality concerns, further downside cannot be ruled out if market sentiment towards capital market stocks deteriorates or if the company reports additional weak quarters.
Fair value estimation proves challenging given the earnings volatility, but normalising quarterly profits around ₹450-500 crores (excluding exceptional quarters) and applying a 20x P/E multiple suggests a fair value range of ₹650-700 per share. This implies limited upside from current levels and potential downside risk if earnings disappoint further. The dividend yield of 0.66% provides minimal downside protection, offering little compensation for the elevated risk profile.
Shareholding Pattern: Promoter Dilution and Institutional Caution
The shareholding pattern reveals gradual promoter stake reduction, declining from 68.71% in December 2024 to 67.62% in December 2025. This 1.09 percentage point decline over four quarters, whilst modest, represents continued dilution that warrants monitoring. The promoter group, led by co-founders Raamdeo Agrawal and Motilal Oswal, maintains dominant control with 67.62% holding, yet the trajectory suggests potential further dilution through employee stock options or strategic initiatives.
| Quarter | Promoter | QoQ Change | FII | QoQ Change | Mutual Fund | QoQ Change |
|---|---|---|---|---|---|---|
| Dec'25 | 67.62% | -0.07% | 6.93% | -0.59% | 5.48% | +0.36% |
| Sep'25 | 67.69% | -0.11% | 7.52% | +0.23% | 5.12% | +0.33% |
| Jun'25 | 67.80% | -0.64% | 7.29% | +1.28% | 4.79% | -0.33% |
| Mar'25 | 68.44% | -0.27% | 6.01% | +0.12% | 5.12% | -0.72% |
| Dec'24 | 68.71% | — | 5.89% | — | 5.84% | — |
Foreign institutional investor holdings declined from 7.52% in September 2025 to 6.93% in December 2025, indicating reduced international investor appetite for the stock. This 0.59 percentage point reduction in a single quarter suggests FIIs are taking profits or reallocating capital away from the stock, likely responding to earnings volatility and valuation concerns. The FII stake had reached 7.52% in September after increasing from 6.01% in March, but the recent decline reverses this positive trend.
Mutual fund holdings show marginal improvement, rising from 5.12% in September 2025 to 5.48% in December 2025. This 0.36 percentage point increase suggests some domestic institutional investors view current levels as accumulation opportunities, though the absolute holding of 5.48% remains modest for a mid-cap financial services company. Insurance company holdings declined to 0.15% from 0.23%, whilst other domestic institutional investors increased their stake to 0.79% from 0.48%, indicating mixed sentiment among different institutional investor categories.
The absence of promoter pledging represents a positive factor, indicating the promoter group's financial strength and confidence in the business. With 255 foreign institutional investors and 29 mutual funds holding positions, the stock enjoys reasonable institutional coverage, though the relatively low aggregate institutional holding of 13.36% suggests limited conviction among professional investors about the company's near-term prospects.
Stock Performance: Severe Underperformance Across Timeframes
Motilal Oswal's stock performance has deteriorated sharply over recent months, with the shares declining 30.32% over the past three months compared to the Sensex decline of just 3.45%, resulting in negative alpha of 26.87 percentage points. This severe underperformance reflects growing investor concerns about earnings quality, business volatility, and valuation sustainability. The one-month performance shows a 14.42% decline against the Sensex fall of 3.74%, indicating accelerating negative momentum.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -8.51% | -0.39% | -8.12% |
| 1 Month | -14.42% | -3.74% | -10.68% |
| 3 Months | -30.32% | -3.45% | -26.87% |
| 6 Months | -18.32% | +0.48% | -18.80% |
| YTD | -13.72% | -3.95% | -9.77% |
| 1 Year | +11.26% | +8.61% | +2.65% |
| 2 Years | +70.69% | +15.78% | +54.91% |
| 3 Years | +332.72% | +37.97% | +294.75% |
The six-month return of negative 18.32% compares unfavourably to the Sensex gain of 0.48%, resulting in negative alpha of 18.80 percentage points. Year-to-date, the stock has declined 13.72% against the Sensex fall of 3.95%, underperforming by 9.77 percentage points. This consistent underperformance across multiple timeframes indicates systematic selling pressure rather than temporary volatility, suggesting fundamental concerns are driving investor behaviour.
Longer-term performance metrics paint a more favourable picture, with one-year returns of 11.26% modestly outperforming the Sensex gain of 8.61%. The two-year return of 70.69% and three-year return of 332.72% demonstrate the stock's historical wealth creation potential, though these gains increasingly appear to reflect the exceptional bull market in capital market stocks during 2021-2023 rather than sustainable business performance. The stock's underperformance versus the capital markets sector by 10.72% over the past year further highlights relative weakness.
Technical indicators universally signal caution, with the stock trading below all major moving averages—5-day (₹787.22), 20-day (₹829.76), 50-day (₹877.92), 100-day (₹918.00), and 200-day (₹871.33). The overall technical trend is classified as "Mildly Bearish," with multiple indicators including MACD, Bollinger Bands, and KST flashing bearish signals. The stock's high beta of 1.20 indicates amplified volatility, with risk-adjusted returns of just 0.27 compared to the Sensex's 0.76, classifying it as a "High Risk Medium Return" investment.
Investment Thesis: Quality Concerns Override Valuation Appeal
Motilal Oswal Financial Services presents a complex investment proposition, with strong historical credentials increasingly overshadowed by recent performance deterioration and earnings volatility. The company's "Good" quality grade reflects its long-term track record of 22.75% sales growth and 30.77% EBIT growth over five years, alongside a robust average ROE of 22.76%. However, the financial trend has been downgraded to "Flat" for Q3 FY26, following a "Negative" assessment in Q2 FY26, indicating deteriorating operational momentum.
The valuation assessment of "Very Expensive" represents a critical concern, with the stock trading at elevated multiples despite deteriorating fundamentals. The mildly bearish technical trend compounds the unfavourable setup, suggesting limited near-term upside potential and elevated downside risk. The proprietary Mojo Score of 47 out of 100 places the stock firmly in "SELL" territory, downgraded from "HOLD" in early January, reflecting the combination of valuation concerns, weak technicals, and flat financial performance.
"The disconnect between Motilal Oswal's premium valuation and deteriorating earnings trajectory creates an unfavourable risk-reward equation for investors at current levels."
The investment case is further complicated by the company's exposure to volatile capital markets, high leverage of 1.22 times debt-to-equity, and declining cash and cash equivalents. Whilst the company maintains strong competitive positioning in niche segments and benefits from the promoter group's industry expertise, these advantages appear insufficient to justify current valuations given recent performance trends. The nine-month profit decline of 44.89% represents a significant red flag that cannot be dismissed as temporary cyclicality.
Key Strengths & Risk Factors
KEY STRENGTHS
- Strong Return on Equity: Average ROE of 22.76% demonstrates efficient capital deployment and profitable business model, positioning favourably versus peers.
- Diversified Business Model: Revenue streams across institutional equities, asset management, housing finance, wealth management, and broking provide cushion against single-segment shocks.
- Established Brand Equity: Three-decade track record and strong promoter credentials create competitive moat in relationship-driven financial services segments.
- Improved Leverage Profile: Net debt to equity of 1.22 times represents lowest level in recent periods, providing enhanced financial flexibility.
- Promoter Commitment: Zero promoter pledging and continued high promoter holding of 67.62% signals confidence in long-term business prospects.
- Long-term Growth Track Record: Five-year sales CAGR of 22.75% and EBIT CAGR of 30.77% demonstrate historical wealth creation capability.
- Strong Institutional Coverage: Presence of 255 FIIs and 29 mutual funds provides liquidity and research coverage for informed investment decisions.
KEY CONCERNS
- Severe Earnings Volatility: Quarterly profit swings from ₹1,162 crores to loss of ₹64.77 crores to ₹565.97 crores demonstrate unpredictable earnings pattern.
- Deteriorating Nine-Month Performance: Profit decline of 44.89% for nine-month FY26 versus prior year indicates structural challenges beyond normal cyclicality.
- Elevated Valuation: "Very Expensive" classification with P/E of 22.27x and P/BV of 3.50x appears unjustified given recent performance deterioration.
- High Leverage: Debt-to-equity of 1.22 times creates financial risk, particularly concerning for cyclical capital markets business requiring consistent liquidity.
- Weak Technical Momentum: Stock trading below all moving averages with mildly bearish trend and negative alpha across multiple timeframes signals continued selling pressure.
- Declining Cash Position: Current assets fell from ₹20,847 crores to ₹13,746 crores, flagged as concerning in financial trend analysis.
- FII Selling: Foreign institutional investor stake declined from 7.52% to 6.93% in Q3 FY26, indicating reduced international investor confidence.
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained improvement in quarterly earnings beyond single-quarter recovery
- Margin stabilisation above 50% for multiple consecutive quarters
- Market share gains in asset management or wealth management segments
- Successful technology investments driving operating leverage
- Increased institutional investor participation reversing recent FII selling
RED FLAGS
- Further deterioration in Q4 FY26 results reverting to weak Q2 FY26 levels
- Continued margin compression below 45% indicating structural profitability challenges
- Asset quality concerns emerging in housing finance or loan against securities portfolios
- Increased leverage beyond 1.5x debt-to-equity straining financial flexibility
- Continued promoter stake dilution accelerating beyond recent pace
The forward outlook for Motilal Oswal Financial Services remains clouded by uncertainty, with the sustainability of Q3 FY26's profit recovery requiring validation through subsequent quarters. The company's ability to stabilise margins, generate consistent earnings, and demonstrate operating leverage will be critical for re-rating the stock. Investors should monitor quarterly results closely, particularly revenue mix trends, margin trajectories, and cash flow generation, to assess whether recent weakness represents temporary cyclicality or signals more fundamental challenges.
Market conditions will play a significant role, with capital market activity levels, interest rate trends, and regulatory developments all influencing performance. The company's diversified business model provides some resilience, yet the interconnected nature of financial services segments means weakness in one area often cascades to others. Management's capital allocation decisions, particularly regarding lending business growth versus capital-light segments, will shape the risk-return profile going forward.
The Verdict: Elevated Risk Warrants Caution
Score: 47/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of "Very Expensive" valuation, "Flat" financial trend, and "Mildly Bearish" technicals creates an unfavourable risk-reward equation. Wait for sustained earnings improvement and valuation correction before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions, particularly if holding at substantial profits from lower levels. The deteriorating nine-month performance, severe recent underperformance, and elevated valuation suggest limited near-term upside with meaningful downside risk if earnings disappoint further.
Fair Value Estimate: ₹650-700 (12% downside from current levels)
Rationale: Whilst Motilal Oswal maintains strong long-term credentials with robust ROE and diversified business model, recent performance deterioration, earnings volatility, and premium valuation create an unattractive investment proposition. The 44.89% nine-month profit decline, combined with flat financial trend and bearish technical momentum, suggests fundamental challenges that warrant caution. The stock's severe underperformance across multiple timeframes reflects legitimate investor concerns about earnings quality and sustainability rather than temporary market dislocation.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
