Nuvama Wealth Management Limited (NUVAMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nuvama Wealth Management Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Ashish Kehair, MD and CEO, for opening remarks. Thank you, and over to you, sir.

Thank you. Thank you so much. Good afternoon, everyone, and a very warm welcome to all of you for joining us today. As always, it's a pleasure to connect with you all. Joining me today on the call is Bharat, our Group CFO, along with our investor relations adviser, SGA. We'll begin with a brief overview of our performance for the quarter and once I am done, Bharat takes over. And once both of us are done, we can quickly jump to take your question. Just a quick summary. I think it was a strong beginning for us this year, delivering record quarterly profits and healthy all-around performance across all our businesses. This was also reflected in a significant milestone for us this quarter. Client assets crossed INR 5 crores. Our quarterly revenues crossed INR 900 crores. and our quarterly PAT crossed INR 300 crores, an all-time high for us. ROE still stands near 30% and renins to be one of the best in the industry. Before I discuss business performance, let me just share some quick observations on how the industry is evolving and how we see the opportunity ahead. I think I've said some of these before, so I'll be brief. Some of you may find it competitive. But I think, nevertheless, it merits a discussion. Firstly, I think the value of full platform model is becoming increasing the evidence. Across the industry, you'll witness that if someone is a stand-alone wealth manager or asset manager, they are trying to build capital market capabilities. while the traditional capital market broking investment banking firms are clearly seeking to strengthen their wealth franchise. So I think that convergence is clearly visible across the market now, which we've been talking about for 5, 6 years, but this is inevitable. This is going to happen. Second, I think independent wealth management as a cluster is becoming an emerging powerful force. A lot of new entrants are coming into this business, whether it's banks bringing focus back or private equity funded players, a lot of actions you are seeing in this segment. Third, I think in addition to ultra-high networks, which, of course, has been mainstream for quite some time now. The affluent and H&I segment is also emerging as a very, very attractive opportunity. It's extremely large. It's growing. It's omnipresent across the country. And it remains structurally underserved and it will remain difficult to serve. It's not a very easy segment to track. It takes time, but it is an attractive opportunity. And lastly, I think it merits to say that technology and more so generative AI is playing a very, very transformative role. I don't know how it is going to evolve in the next 4, 5 years. But I think it is definitely going to bring in lots of efficiency for everybody. Some may be slightly ahead in the curve, like it happens in any technology innovation Initially, it is always nonmainstream a few people do it. And in 2, 3 years, it becomes mainstream. It becomes power for ports, it becomes hygiene, most of the players have it. So I don't think internally to panic about it. We are investing around it. We are investing heavily. And I think it will benefit most of the industry because it will bring efficiency in every part of the value chain, which we deal with. With that context, let me now quickly share a few highlights across our businesses starting with Nuvama Wealth. I think we took a call long back that putting the power of choice in the hands of the client is a central differentiator to us. And this is what this business represents. Our [indiscernible] model. The strong reflection of this philosophy, the platform empowers clients to define their objectives and access to investment solutions across the board. It start -- narrow it doesn't confine the clients to choose from a 1 or 2 categories. It keeps it open because we understand that every client is unique and their needs are unique, and it can be fulfilled through the wide range of solutions available. Revenue from NPI grew by about 20% year-on-year. Native money, 1 of the highest quarters ever. We crossed INR 3,000 crores in this. And overall assets also increased about 32% year-on-year hitting INR 42,500 crores. I think one of the interesting observations which we are seeing that Tier 2 and beyond is expanding faster. I think now it has started contributing to more than 35% and growing even in the NPI segment. Second, I think the success in this model ultimately is driven by the bounty of advice, which gets delivered to the client. And to support this, we continue to invest in our talent ecosystem, which begins by hiring the right cohort the right seniority. And as I mentioned last time, we are doing a seniorization of the entire team. We added 4 more net relationship managers in that cohort this quarter. Third, to continue my discussion on tech. We are deliberate and intentional in investing in technology and here across the value chain, and this business, I think, will get the most of it. We've introduced concepts like [ Magat ]. This is an AI-based chatbot with services, RMs and our external wellness. We have something called Red Buddy, which is a voice-enabled AI system for supervisors and RF to manage their whole life cycle client book and is personalized insights to them as to how they can improve their performance. We have a customer profiler, which is now completely AI-based. We have done a POC with about 200 people, and we'll roll out to the full team very soon. I think all this has led to significant productivity jump across NPI has both revenue, net new money assets, we have seen more than 25% jump per RM year-on-year. and overall revenue jumped up or 17% per RM year-on-year. And lastly, on lending, we continue to scale the book. We have mentioned a few quarters back that the growth of the book will be in line with the overall business. The book has now crossed INR 5,000 crores lending book and NII growth was also about 12% Q-on-Q. It remains at about 20%, 22% of our overall revenues in the [indiscernible]. Moving on to Nuvama Private. First and foremost, RM addition. I think I mentioned last time that this segment is seeing some intense competition. It's not that it was not there earlier, but I think it's become more heightened now. And I shared my views around it last time. But I keep telling my colleagues that it's a good thing that we keep struggling for arms because it actually shows the hypothesis that the growth is intact in the industry. And we made a bet long back, and I think it's playing out now. Against this backdrop, we are happy to state that we added about 11% of our force in the last 1 year, and we've added about 6 to 8 in the last quarter. I think we offer 1 of the most comprehensive platforms for seasoned balance in the industry. Across the entire solution spectrum, it basically allows them to solve their clients in the best possible way and also give the immense opportunity to raise well for themselves. During the quarter, we expanded our presence both in Tier 1 and tier and emerging wealth markets. adding people across Mumbai, Chandigar, Andaba and Chennai. Moving to recurring revenue assets. We continue to see decent momentum there. Full year basis, the ARR assets grew by about 20% to INR 58,000 crores and net new money into managed accounts continue to remain strong at about INR 1,800 crores. Overall, ARR flows this quarter was slightly soft on a net basis at INR 1,000 crores because we are in the process of reading out some extremely low-cost mandates, which were acquired long round back. These are historical mandates, and we are in the process of cleaning them up. So I think that number is a reflection of post that cleanup. Our target for the full year still remains at 22% of the opening assets. We've launched an offering here for the super ultra HNI called Pinnacle. It's a very, very differentiated offering, bundling multiple things and delivering a lot of value proposition to the client. I think it will help us in garnering more ARR assets here. Talking a bit about offshore. Our focus over the last 18 months has been to build the platform out. And I think now we are seeing the delivery up -- we have 2 locations to buy in Singapore, Dubai, we've already broken even and Singapore will break even by the end of this year. Overall, revenue contribution from offshore will remain between 5% to 7% at least in this year. We are now in the process of ramping up capacity there. It is a highly accretive ROE business because lending in this business doesn't sit on our books, any offshore lending sits in the books of our partners. So basically, there is no capital uses, it happens. So once you break even, everything is straight addition to return on equity. I think overall, offshore is becoming an important element, not only to serve clients outside but also to deliver a holistic value proposition for clients in India. Clients in this segment. And even in the S&I segment is, in some sense, becoming globally integrated citizen and allocations are moving out to global assets not rapidly, but I think slowly and steadily. And our view is that over a 3, 4-year period, you will see a 20 -- maybe around 15%, 20% allocation sitting in a lot of client portfolios, which are offshore assets. And if you have a presence overseas, our ability to serve them becomes better. So I don't think offshore any longer is a luxury. It's a necessity, which every well financial we have to have. RM productivity here also continues to be strong. We have seen a jump of about 17% to 22% year-on-year. Moving to Asset Management. Let me start with commercial real estate. We successfully closed our first commercial real estate fund. It's branded as prime, prime offices fund. -- we closed at around INR 4,000 crores. We had initially launched with a target of 3,000. We've completed deployment of around 40% across 3 to 4 marquee assets between Chennai and Delhi, Pune, we are on the words of completing a few other transactions. And the target is to deploy approach 70% of the AUM in the next maybe 2, 3 months so that by end of Q3, we can launch the second fund, which we want to have around INR 4,000 to INR 5,000 crores again, slightly different strategy from the current one. but in the same space. And then eventually, over the next 24 months, we are contemplating of looking at building a repeat platform because many of these assets, which we are acquiring or deal marquee assets and then the point of selling it out completely. We can move into a replatform and have a source of formenting capital in this business. Moving to private equity. Last -- in the last call, I had mentioned we have done a change of leadership there. Under the new leadership objective single sole objective remains to complete the deployment of the old funds and start returning money which we are now doing. From first one, we've returned about 30% of the capital second fund, we do about 15% of the capital. And we are in the process of raising our port fund is branded as crossover 4. We've done about INR 300 crores to INR 350 crores we are targeting anywhere between INR 700 crores to INR 1,000 crores there. Moving to private credit. Our CIO hiring was done last quarter. Now the team build-out is happening I think it may take another 2, 2.5 months to have a basic level of team in place. And then again, middle to end of quarter 3, we will see the launch of our first private trade fund. I think I would credit in some sense, will have a multiplier effect on the transactional income or also the co-invest income for both the businesses because credit offers significant co-investment opportunity and have a decent appetite across the client spectrum, which right now, we work with the external tariff fund managers whose products will be offered to our clients. In addition to that, we'll also start offering our own funds going the stock activity. Lastly, coming to public markets. I think there, we've seen some amount of volatility given the performance and also due to the launch of FIS, which actually and a more superior tax vehicle. We've seen some redemptions in our absolute return fund and our long-short fund. We have received the MF license or in the process of getting the SF license. And once our SIF is launched, hopefully, we will be able to move the assets from this to that. On the overall P&L perspective on asset time many of you I've asked me in the past that when do you think it starts making money. So I wanted to tell you that at a strategy level now, commercial real estate is making money, Private equity is also making money and public markets is also making money. But because we are investing into new categories, which has a drag of 1 to 2 years, and we've taken an enough license, which needs a separate sort of team from front to back. I think that part of the investment will get over this year. Right now, our cost run rate is between INR 30 crores to INR 33 crores a quarter. Our assessment is that it will peak at INR 35 crores, INR 36 crores a quarter. And by the end of Q4, we will start seeing the revenue in [ tenpwith ] the launches of new products. So this year, we will end up at a cumulative loss of around INR 35 crores, INR 40 crores. And subsequent to that, you will see the path to breakeven start. With that, let me move to our next segment, Asset Services. Momentum was extremely strong this quarter. There was a significant business growth of around 20% quarter-on-quarter. Average client assets have come back to Q1 level of last year when we had lost a very large client and retention has continued to be strong. Just 1 word of caution. We'll see -- we have seen extraordinary level of growth here. I think over the coming few quarters, we are not expecting a quarter-on-quarter growth like this. There will be some amount of moderation as new client acquisition has happened and a lot of collateral is write-down sitting in cash, which will get converted between cash and us.So we may see some level of condition. But on a full year basis, we are confident that revenue growth will be more than 20%, 25% here. We are also investing and building the proposition on this business. You are aware that business is divided into 2 segments, international and domestic. On the international side, I think some significant initiatives are being planned right now, which will start yielding results Specifically, 3 areas of opportunities have been identified. One, subsequent to this STT coming on futures and all single-stock futures and gift have become a proposition where we are seeing a few international players wanting to start activity and are asking us to support them, which we will start. Commodities is becoming important for clients. And you fundamentally can see right now, the collateral of client is being used on users and third because these are the 2 expiries if we are able to onboard commodities, then Monday, wetness the Friday open sir. So it gives a significant amount of efficiency and improve the return on capital for our clients. So I think that is where we are working on. And the third area is also extremely very important for us is trying to work on a global custodian local custodian arrangement, where we have a strategic partnership with a global custodian who doesn't have a presence in India, and we give them the India leg, which allows us to access client segments, which, let's say, most of the other global custodians, which are our presence in India and access, which is long only funds and hedge funds. It's a new segment that open up product is time. On the domestic side, I think I mentioned in the past and we'll continue to progress on our RT offering and taste build-out. I think maybe another quarter or so, and we should roll that out. and that hopefully will lead to a further increase in our market share in that segment. Lastly, coming to capital markets. In the equity market environment remains broadly similar to what we witnessed in Q4 primarily at market activity was very, very selective.The total number of IPOs which we saw in Q1 were 8 as compared to 15 in Q4 and maybe 14, 15 last year. And even the total amount fundraised fell by around 60%, 65%, both against Q4 and last year Q1. But now we are seeing that activity come back. And there is a lot of pent-up demand, a lot of documents have been filed. So I think the balance 9 months, hopefully, we should see better activity there. On secondary market, the volumes have been steady. I think cash volumes have actually seen an uptick and derivatives have been rather flat. There is one key monitorable, which basically on the new regulations which have come around derivatives, which is FTD and on intraday financing and bank guarantee collateral around these 2. We've seen the numbers. We've ran through the numbers. At least we don't feel that there is going to be a very, very significant impact, but we'll closely monitor on that. In the capital market side, I think one point which we wanted to highlight, which numbers are actually showing -- our fixed income activity saw phenomenal activity in this quarter. The -- most of the jump actually on the investment banking side has come from fixed income. And there was significant amount of SPI activity in this quarter initially because they were selling as rupee was depreciating and there was hardening of yields. And towards the end of the quarter, they were buying as government made the capital gains from GSE tax-free. And I think we participated wholeheartedly on both the sides and made significant amount of money. I think there is some amount of, I would say, income, which may not be repeatable in the coming quarters, maybe about INR 15 crores, INR 20 crores, which we benefited in Q1. With that, I think I'll come to an end, and we'll hand over to Bharat to share the granular numbers.

Thank you, Ashish, and good afternoon, everyone, and a warm welcome to all the participants on the call. Ashish covered the headline numbers. Just to repeat a few headline numbers. We started this year on a strong note with a quarterly profit of INR 300 crores plus. Just to put this number in perspective, in FY '22 full year, we did a profit of around INR 292 crores. And after 4 years in quarter 1, we have done a profit of around INR 300 crores. And that is also not coming from 1 or 2 business lines. It is across the business lines. So I think that says it all in terms of the platform strength and the multi-business model is working fine for us. Along with that, the CRISIL has also upgraded our rating from AA- to AA positive -- AA stable. So that is also being reflected because of the financial strength -- now coming back to the Q1 specific numbers. So we have actually crossed the INR 5 lakh crore mark on the client assets and now the client assets at around INR 56,000 crores. Obviously, it is led by the strong net new money as well as the mark-to-market during the quarter. There's another milestone which we have achieved. So if you look at wealth and private, we always talk about more on the NPI asset for wealth and ARR assets for private, both put together has also crossed the INR 1 lakh crore mark. Now NPS asset stands at around INR 43,000 crores and ARR assets stands around INR 58,000 crores. This is a strong growth of around 32% and 21%, respectively, for both wealth and private. In terms of the net new money, again, this has been the highest ever quarterly flows for us crossing INR 3,000 crores for Nuvama Wealth in the NPI asset side. And even if you look at private ARR, as Ashish was referring to a low earning advisory kind of an AUM which we have actually let it go. Our overall net new money on an ARR has actually been INR 1,800 crores for Q1 for private. So that has been going fine. On the asset management side, we actually closed the prime fund at INR 4,000 crores. We actually initially launched it with a INR 3,000 crore target, but we actually ended up doing at INR 4,000 crores. And we have got the SEBI mutual fund approval as well as we have applied for our SF license. So hopefully, starting quarter 3, quarter 4, we'll have a lot more strategies coming up in the market, and that will give that momentum to the asset management business. Coming to the overall revenue, our revenue was at INR 909 crores which is an 18% growth. And within that wealth management grew by 19%, which is almost like 50% of the revenue. Asset Services, as we discussed, that has seen a very good number in quarter 1 of this year, around a 34% growth over previous year at INR 260 crores. But as Ashish also referred to that this could be not that this continue to grow at this kind of a number going forward. This will moderate to some extent, but that's where we are. It's a base effect. In terms of the capital market, our number, overall revenue number is flattish versus quarter 1 at around INR 180 crores, but this is because the high revenue has actually dropped compared to quarter 1 of last year because we had a large ES client which was sitting and helping in that business, which is not there in this space. Despite that, our total number is around INR 180 crores. And as we discussed that on the IB side, it is the fixed income business, which has actually done very good in this quarter. Again, this was led to because of there was an opportunity when -- on 7th of June when the government has actually made GSE interest income as well as capital gain tax-free and including there is no withholding tax. So that led to a little bit more market opportunity for the PIM market, and they obviously capitalize it because this was an opportunity. So maybe some part of this revenue may not repeat in quarter 2 and all. But having said that, fixed income is [indiscernible] doing a pretty good job for us in terms of year-on-year growth in terms of actually expanding to new client segments, new revenue sources. So I think that's a pretty steady business doing well for us. On the cost side, you will see that the quarter 1 cost has actually gone up by 19% and within that employee cost has increased by 17% and OpEx is up by 24%. So if I come to the employee cost in the 17% -- so we have actually added almost 5% net capacity, net people over the last 1 year. And we have actually replaced our low-cost wealth RM with more senior experienced RM. So that is playing in. Then there is an annual increment and as well as the variable cost, which is linked to the business. The data book captures in terms of the fixed cost and increase over the previous year and previous quarter, so that can give more insights to that. OpEx is actually up by 24%, but on a compared to Q4, it is down by 4%. So these are -- there are a few seasonal expenses which comes in this quarter. They will be towards the marketing expenses, business promotion expenses. That will be around INR 10 crores to INR 12 crores. If I remove that, the OpEx would have grown by around 14%, 15% kind of a number, which we've always been maintaining that will grow. Our OpEx to revenue has been steady at, say, 14%, 15%. So to that extent, it is okay with us. If you look at the overall full year OpEx, I would imagine it will still be in the range of 15% to 16% for the full year. 2/3 will go to the typical business-related inflation-related expenses and 1/3 will be towards the new initiatives. There one more update on the OpEx side, which I would like to highlight is that we are looking for our new office because our current lease is coming for renewal. And as you guys know that under Ind AS 116 when you do a lease accounting, there will always be some charge which comes upfront. And then as the lease matures, it starts decreasing. As of now, we have not completely finalized anything, but we'll keep the investors updated on this development and we'll provide further details during our quarterly results. This over and above what I have in terms of the usual OpEx growth for the firm. So this will be there. Having said that, on a consolidated basis, our cost-to-income ratio is around 55% and maybe for the full year, this will remain around this level only. See, if you look at from a cost perspective, there are 3 things which will play in. One is the operating leverage, which is coming in wealth and private. You would have noticed that CI has actually dropped by 160 basis points. So to that extent, these 2 businesses will start giving us operating leverage. Asset management, as Ashish was also saying that we are in the process of actually this year could be a peak out in terms of our cost for the year. And subsequent to that, this will start coming down as a cost-to-income ratio. And the third will be the capital market. Within that, asset services is pretty stable. I think within capital market, when you look at I and within IB, it's mainly the ECM part. I think these 2 businesses are very much linked to the market activity. And hence, on a quarter-on-quarter basis, you may see a cost-to-income ratio goes up and down. But having said that, on a full year basis, we still believe that it could be closer to 55%. Maybe a quarter can be a plus 1% and the quarter may be a minus 1%. So we are okay with that. And finally, if you look at our operating PAT, this is at INR 306 crores, which is a 16% growth year-on-year and our ROE is still close to 30%, which is a pretty, I would say, a good number to have. And that's where we are. Looking at the time, I will request the moderator to take the Q&A now.

[Operator Instructions] We take the first question from the line of Prayesh Jain from Motilal Oswal Financial Services Limited. Please go ahead.

Congrats on good set of numbers. Firstly, on the well on the private side, the cost to income is at 70%. We have been discussing that the overall wealth cost to income should 1 towards 60%, 62% lower in the near term and then in the medium term. When and how do you see this progressing particularly on the private side? Because well definitely is progressing towards that mark. But on the private side, it's still kind of elevated. And what is the kind of addition that you're looking forward from your year as well?

So Prayesh, Q1 actually should not form the basis. If you look at Q1 FY '26 also and Q1 FY '27 is 70. But overall, profit growth delivered is about 22%, right? So we also basically load the variable incentive in line with the revenue growth that happened Full year basis, last year was around 66%. I think we will be lower than that this year. And RM addition essentially our desire always is to basically keep adding 15 every year, provided the market allows us to do that at costs which are not upsetting to the overall business. Last 12 months, we've added about 11% on a net basis. And even Q1, we've added around 6%, I think that will continue. That won't stop. And overall, as you rightly said that 60% to 62% medium term, that target also remains over the next 3 years.

Got that. And on the wealth side, the retention seems to have fallen from about 90 bps to 5 bps, what was the reason for that?

So typically, Q4, Q1, the 1 biggest phenomena in that business is insurance. In insurance, Q4 numbers are normally higher. So your for a lower denominator, you get higher income. So there is a few bps uptick that happened. And second, in that business, we report a total yield. So what happens that in a quarter when the equity market has high mark-to-market, positive mark-to-market. But your overall brokerage venue doesn't go up I mean, in tandem, then there is a downward movement of field. And on the reverse, if there is a decline in lift and broader markets. and your brokerage doesn't fall that once there is an uptick in yield. So that adjustment you'll have to keep in mind in line with the mark-to-market data.

Got that. Got that. And on the AMC, there is -- has shot up significantly, particularly if I look at your lease on the private market side, what kind of thing that kind of has gone up so much?

Sir, if you see price last year after Q1 in I think Q1 end of Q2, I don't remember, we had mentioned in the call that we will give a pause to the fee that we are charging on our venture debt fund because there was a change in the market condition and the yields in the market has fallen significantly, and the riskiness in the deal had gone up significantly. So we had slowed down the pace of deployment. So we said in order to not disadvantage the investors in the fund, we will forego our fee and we will start charging it next year. So 3 quarters, we did not charge and Q1, we have restarted charging. So basically, it's that difference only. Nothing else.

So this should sustain now?

Yes, yes, yes. Unless we stop again, this is a thing.

Okay. And last question on the capital market side and the asset services. So you mentioned that the there should be some moderation and full year growth should be 20%, 25%. So in that sense, it is more -- it will be more driven by fees and not back flows? Is that the right way to think? And how should we think about....

Yes, that's right. So flows will continue. The yield will adjust because some amount of collateral may shift from cash to [indiscernible].

Just last point here, the cost to income hasn't dropped in the segment, probably looking at the revenue growth, it was in the previous quarter, it was 40%. It's now at 39%. Any I or LDs putting the pressure otherwise we would have expected much more significant improvement here? And what should we think about full year cost to income under segment?

Similar range only because we've also provided for the variable cost in line with the revenue growth. And investment banking, at least the ECM side and a bit of IE has been under pressure, which I think as it comes out, will be an improvement. But I think overall full year basis, anywhere between 36% to 40% range is what will remain here.

We take the next question from the line of [ Dipan ] from Goldman Sachs.

You changed your name.

So I think they changed the name. Yes, quite quick questions. First, in terms of Nova private MPIS and Nuvama Wealth manage -- particularly the managed accounts on NPI the businesses. Just wanted to get some color on the asset mix and underlying product mix in this segment, how that would have changed during this current geo-vertical prices, if there has been something if you can give some color on that. Second was I think in the domestic [ Capital servicing ] business, I think you mentioned that you'll be going in with IP and prostration business, which should kind of help can you gain market share. But if I were to think from a medium- to long-term perspective, I think in your [indiscernible] other segments, you might be servicing from the domestic mutual funds also. So any plans, let's say, of OC future to kind of try to get into that large segment on the MX side in terms of cost of opportunity [indiscernible]? The third question is how should 1 think of the ESOP cost and dilution over the next 2 to 3 years? Those are my 3 questions.

So asset mix, I don't think 1 or 2 quarters have significantly changed it. But broadly for us, it remains in the managed account and managed products and ARR segment between 30% to 35% would be equity and 65% will be not equity. So it's not fixed income. It will be fixed income plus alternate as like credit, real estate, infrastructure, so products that could deliver clients returns ranging from 7%, 8%, right up to 18% to 20%, but non-correlated with the equity market performance. We typically try to say that it's fixed income, it's not necessarily fixed income. It's yield but the range is very wide depending on the product that clients have chosen. I think now some amount of come back to equities we are starting to see once there is some adjustment in the AI trade globally and some good, I think, discussion around India is happening. So maybe in the next 2 quarters, the proportion of equity may go up. On the TI and trustee, both would be targeted towards the current client segment only, which is our PMS and AIF. I don't think right now we firmed up to go behind mutual funds because their banks still continue to have a better right to win because you need some form of balance sheet if they need intraday financing to manage redemption flows and all, we would not be superior. However, for products which are like arbitrage funds or products which are SIS, which let's say, which involved usage of derivatives or, let's say, categories where users of derivative efficiency of collateral becomes a more important paradigm for AMC to improve the return delivery to their clients, we have a play. Categories, which are vanilla like long-only fixed income and equities, the internal financing is the play we are not the preferred trade. So I think it will remain like that. I think ESOP cost important question. We've -- right now, it's gone to shareholders for approval. It's not actually ESOP its stock appreciation rights. So ESOP explain the difference because it has a significant impact on dilution. Most of the companies in India do ESOP, which means if you do units. And if you grant 1,000 units and people exercise 1,000 units, it's a dilution of 1,000 units. Whereas in IFA, what happens, if you grant 1,000 units, what finally the shares which are given to people who exercise, it's only to the extent of profit. So now assume that if Nuvama price today say hypothetically INR 150 or INR 1,800. And let's say, average exercise of people is that hypothetically say double at INR 3,600, your dilation will become half. If it is say, 30% above the current price, the dilution will become even lower, where in ESOP dilution is 1:1, the EPS loss to shareholders is significant. So our calculation is very simple. If the stock price appreciates by 20% every year for the next 5 years and people exercise 1 year after they're investing against the 7.5% pool, our dilution will be 3%, so less than half. The cost to the company remains same as ESOP, the option premium, which will get recognized on a 5-year vesting period. Obviously, it will be upfronted more. The profit to the employee will be same as we saw the dilution to the shareholders is less than half. So it's like a win-win for everybody. Cost for us is typically the premium cost is around 20%. So if we grant, let's say, if you end up granting options worth INR 1,500 crores or INR 2,000 cost order of magnitude is INR 300 crores to INR 400 crores over a 5-year period, slightly heavier upfront because that's how the India costing structure flows down. But it's a noncash cost. There is no cash outflow, and you end up saving tax of 25%. So actually, the cost is 75% of the premium plus. That's how it plays out. And there's some bit more technicality here. Whenever the exercise happens, there is a perquisite value on which an employee gets taxed. Actually, companies have started claiming that purpose it also as cost and you end up selling. So if you are able to do that against a total cost of INR 400, our net cost will be INR 150 only over a 5-year period. That's the sum and substance of our impact.

Just 1 small question on the wealth business. You have not previously class could classify your Nuvama Wealth AUM between relationship management-driven and external asset management driven. But from a flow perspective in the ARM segment, since you categorically mentioned there are a lot of flows are coming in from Tier 2 and 3, is there any breakup that we could get maybe on a rolling basis between RM and EAM from an AR flow perspective in the Nuvama Wealth segment?

We will have a look at it. And if we can incorporate, we will add it. But it's broadly in a similar range as AUM right now.

We take the next question from the line of [ Madhukar from JPMorgan ].

Sir, you spoke about optionalities and the business that we want to create on that space. So in particular, you spoke about the Gift City option and Second was making that margin line with you on the asset services side available for other exchanges. So on -- specifically on the second option, can you elaborate a little bit as to what stage are the in the thinking process can this actually be done given certain restrictions on commodity exchanges. So where are we over here? And also, how large can the opportunity be on the Gift City derivatives trading business of there? So any sort of guidance and additional color on this is what I would want to know.

I think, [ Madhukar ], more clarity will evolve in the next 2, 3 quarters, at least on the Gift City because, as you know, it's right now premature because the tax the cost structure in India has created this opportunity where there is no STT in Gift City and there is an entity on the domestic exchange. But for any derivative market to thrive, there has to be volume. Right now, the volume is restricted to index it start in single stock. But there are large participants globally who have approached us that they want to -- they can obviously run swap books globally. And those sort books can be hedged using them if the trade between themselves also. So I think that's how it will start. And right now, they want to work on a minimum commitment basis. So that's how it starts. And I think that we will see how that build-out happens. It's a bit premature to talk about how the volume will evolve because we'll have to see how it goes. Commodities, on the other hand, depot is faster, whatever FPIs are allowed to do. Some of our clients have already started doing specific numbers we will come back in the next quarter. But I think as a rough cut assessment, what we were seeing, it can become at least 15% to 20% of the equity market size for our relevant client segment. In that sense, the way it is evolving. And the third one, which I mentioned, which actually can become very, very large is the global custodian local custodian tie up because right now, we have precluded from targeting that client segment where global [ long-onlies ] are investing into India, we are actually closely working with 2, 3 large global custodians who have access to who have access to global long only, but they lose out on their India mandates because they don't have any local presence, and that's what we want to fill up so that they can pitch using our services and we get access to a new client sector.

We take the next question from the line of Sanketh Godha from Avendus Spark.

So Ashish, is it sold to say that your private that is ultra-nibusiness? Because I just want to understand from you from an industry point of view that more people choosing advisory over trail-based revenue is becoming a prominent factor which was big, but now you're feeling it will be happening more. And therefore, Therefore, if you take a call of not doing the business at lower yield, is it fair to say that your heavy lifting of the incremental net flow numbers will be done more by mid-market or wealth segment and MC segment. Just need to understand at what point of time you would be okay to do advisory business even if IDs are lower?

Again, this -- actually, when we say lower yield, this is more like a corporate treasury type mandate, not a UHNI. UHNI, we are more than happy. And I think directionally, we are heading towards advisory, like I spoke about our clinical proposition, and we have our Infinity proposition. Maybe in next 3, 4 quarters, you will see the numbers separately coming from advisory. We are also now fundamentally clear that advisory in the current shape and form will start working. And on the overall book, the yield actually may go up. Because if you look at the combined yield today for any ultra HNI business, if you combine the transactional business and the ARR business and you take the full yield, it's not more than 30, 35 bps of NII. So I think that is easily achievable even through an advisory business and gives far higher stickiness in the long run, and that progression has started internally. In terms of creating value proposition, creating teams and all and numbers will eventually start flowing. So I don't think we are going to -- because that is really that is going to play and that I'm also seeing the regulatory infrastructure change because today, if we are doing advisory with an accredited investor, we can offer all distribution services also to them earlier, that was not a scenario. So clients are losing out, advisers are losing out. Right now, the package is becoming far more stronger. So I don't think you should take the statement of beating out lower advisory in that direction. This is more legacy account, typical corporate treasury and all, which we may want to shift to transactional business kind of category. But Ultra, we will progress towards advice.

So Ashish, is it fair to say that today, last year, you were almost at 90 bps on private. And in the quarter, you reported 82 bps, so -- on AR, I mean to say. So basically, this number because advisory going up will keep on seeing a little -- trending downwards, assuming you don't get a consumer business.

Not really. I think in the next 2 quarters, you will see the range to be again. So I've always maintained since that between 80 to 90 at this point in time is what we are able to see. It depends on the product mix of ARR, what gets done or what proportion of product of between [indiscernible] become heavy quarter. Let's say, we have a blockbuster product in category 2 if in a particular quarter, it could cross 1% also. I don't think right now that impact of advisory will play out, maybe next year, we may see. But then the flows will become far larger once that happens. And of course, NII, as you rightly said, that tool remains.

Okay. So, Ashish, if you can give a color out of the INR 5,500 crores of closing a what you have in ARR, how much is today adviser and how much is on trade?

[ 13,000 ].

13,000. Okay. Understood. Understood. And the second question, which I wanted to say is that there was a consultation paper on PMS. Do you think this is a material big opportunity for us in mid-market segment or UHNI segment. And I don't know whether the 2.5% fees, what you can charge will be -- will hold up or not. But any initial thoughts you have on this piece?

Not the PMS MFPs because actually, [ 50 has become 25% ], and we already had a product in our setup at 50, which was of direct plans. But I think the other measures which they have mentioned, that can have more impact for both our businesses, which is allowing for 2 village securities to reincorporate that makes PMS come at par with MF and EIF allowing for overseas investments to be made as part of PMS. I think that will be helpful because it allows us to give sort of global diversification in the portfolio if clients are giving discretionary mandates on the web finite. I think these 2 measures have -- will have a better impact than MF only. MF only was already there, and it was people using it. I think it is to enable a first who needed a higher amount of capital and all to have a light touch like touch vehicle, not for established wealth management.

Understood. Understood. And just 1 more, just maybe a color on flows number because last year, we did around INR 20,000 crores of net flow if I include NPIS prior and AMC -- so any color you want to say, you will see that number to be in 2017? And if you can split among the 3 segments, if you just mentioned would be useful.

Broadly, -- and these are obviously indicative numbers, but the way we are seeing it is that between wealth and private, both [ 10,000 to 12,000, 10,000 to 12,000 ]. So a range of [ 20,000 to 24,000 ] and AMC, we are seeing anywhere between [ 3,500 to 5,500 ].

Okay. Understood. Understood. Understood. And lastly, on this IEI business, largely it was driven by AB in the current quarter? And before next year is the IP market or is markets become super active then I should support incremental growth for subsequent quarters?

So first quarter was a combination of institutional equities plus the fixed income part of investment banking. Fixed income part of investment banking really hit it out of the park. So let's say, some bit of moderation happens there and that will get covered up by the ECM ramp-up plus more. So I think ECM, like you said, once it opens up, you will see better growth in that line from where we are because fixed income on base level has been set and continues to do. Yes, ECM was very, very bad in Q1.

Okay. Understood. Understood. Sir, so basically, INR 180-odd crores kind of run rate is more manageable number for next 4 quarters.

Yes.

3 quarters.

Yes. Yes.

[Operator Instructions] The next question comes from the line of Lalit Mohan Deo from Equirus Securities.

Sir, sir, just 1 question on this lending book. So we are seeing a good growth on a sequential basis. But when we calculate the earnings now under this is based on the number. But in terms of margins, we are somewhere currently trading at around 3.7%, 3.8% on a period-end basis. So like what would be the steady state margins in our vending work and going ahead? How should we see this overall lending book both in private assets business?

So about 30, 40 bps higher than this because like I mentioned in a few calls, our cost of debt basically moves a bit up and down because of the hedging gains and losses, which comes on our MLD book. Our overall borrowing has about 25%, which is the MLD on which we keep hedging. On a full year basis, we are able to save around 50 basis of cost. In some quarters, you will likely negative. In some quarters, we were slightly positive. So if you see Q4 of last year and Q1 of last year is where we saved about 60, 70 basis and Q2, Q3, we were slightly negative. So this year, Q1 is like Q2, Q3. So basically, blended, if you are asking me from the current level, you can add 40, 50 basis points from here.

We take the next question from the line of Sanidhya from Unicorn Assets.

Sanidhya this side. Fairly good rate in the opening remarks about the capable looking that are driving the sector right now. I would want to hear more upon how do you see in the wealth segment, particularly as you see the largest retail focus broker in the sense or the other brokers as well, which are basically platform or technology is, they are focusing more on the mid- to lower ticket size clients in terms of wealth management. Like in the holistic on is mainly driven by the technological benefits that they have. How do we see ourselves as in that? Because I think Nuvama is also in the same category. Are we competing -- are we.....

Actually, there is a category difference in the customers which we handle...