Nuvama Wealth Management Limited analyst Q&A

Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Prayesh Jain from Motilal Oswal Financial Services. Please go ahead.

Good morning, Ashish and Bharat. Great set of numbers. A few questions. Firstly, on wealth, could you give me some understanding on the breakdown of your managed products category and what is the kind of share of insurance or some other products, the breakdown will really help us understand as to how things are moving. And the yield pressure in the wealth segment is primarily just because of NII going down right, nothing else to be kind of looked back there. So that's on wealth. On private, again, breakdown of AUM with respect to especially the ARR AUM that is from which segment does it come through that will help us understand better. And again , the yields have been declining consistently. It's not that just the recent quarter or anything else. But how should we look at it from a structural standpoint whether the yields have to be assumed at the current levels or it can see further decline. Bharat did allude to it, but your view going ahead is something that we'll look here. And also, there is some weak net new money in this business. And last question would be on asset services. What is the kind of split between d omestic and international here and is there any concentration risk in the international piece? Those would be my questions.

I will start with your first one on Wealth managed products. Basically, out of the net new money that is coming in now Prayesh , about 65%-70% essentially pertains to PMS, AIF and MF in terms of MPIS flow. MPIS totalled about 65% and out of the total MPIS AUM, I think now about 60%-70% is now managed products. And when we say managed product s, we don't include insurance in it. Insurance falls in the bucket of investment solutions. So fixed income, MLD unlisted and insurance, that is the other bucket. So, 65% to 70% flows now sitting in managed products. And within that given the segment, I think the yields would be more on a trail basis between 1% plus because all PMS AIF CAT 3 would be at that range itself. On the yields falling from whatever, 85 to 83 bps, I think there's nothing structural. There is just one element which we want to keep saying on the w ealth business is that there is a component of broking assets, where MTM and the revenue doesn't actually move in tandem. If you see last 18 months, Prayesh, INR 35,000 crores of broking assets have become INR 70,000. So literally doubled, but revenue of broking doesn't move like that. And in this quarter, specifically MTM is 7% positive, but revenue is down on broking because of whatever has happened in the market ; true to label, F&O, consolidation, all reasons put together. 7% positive MTM and the yield impact is just 2 bps in a quarter where your NII has been because of the self -clearing and all. So , if you remove the impact, our actual yield this quarter is 90 bps. So , there is nothing structurally wrong. So Q4, you will see things coming back. Private ARR breakup. Again, out of the ARR flows, actually everything is managed products only. And around INR 42,000 crores is our ARR AUM out of that INR 12,000-13,000 crores is advisory and rest happens to be about INR 2,000 crores of loan and rest is managed products. And yield there. Yes, this quarter, we saw about 7 bps of fall. 7 bps of fall, out of that, again 4 bps comes from self-clearing, so that will reverse about 1 to 2 bps from MLD. So , I think that will also change. The other -- the third bucket, which is the proportion of CAT 3 AIF is going up, that is structural in nature. So, if you ask me, I think 80 to 85 basis points should be the sustainable yield and I think Q4, we should come back to that level . Asset Services, domestic international breakup remains the same. Like I said last quarter , 25-75. And internat ionally there is always this concentration. But the good point is that the top 5, 7, 10 clients. See, it's not a business where you have thousands of clients. There are only limited set of clients, let's say, 100-200 internationally. And the top 10 keeps changing. So that is the good part which you always want to see, that you are not necessarily dependent on just one or two it keeps changing depending on how they're deploying their strategies, how they are bringing in capital into the country. So that's where we are in terms of asset services.

Just one question there on net flows on the private side.

On the private side, sorry, I missed that. Transactional, there is a negative. There i s one transactional client which basically moved out, but hardly an impact on revenue. But on the ARR side, if you see the flows are consistent and this was a one-off transactional outflow, which happened for one client because I think they are relocating and they're taking everything to the Middle East.

Okay. Got that. Thank you so much. All the best.

Thank you. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.

Congratulations on a good set of numbers. Firstly, so in the clearing business we saw some yield pickup in this quarter. Now that could be majorly on account of that movement of self-clearing, but I wanted to understand more on that and like how that yields have increased. Secondly, so like you mentioned that we are building our presence in Dubai and Singapore. So just wanted to know like how many RMs over there we have recruited and what is the growth plan for the next 2 to 3 years?

Okay. So self-clearing, basically as I said earlier, the clearing of wealth business used to happen through our asset services division. Now we have moved those assets, which were sitting there. They have been transferred back to wealth. So, you will see that assets under clearing there is a dip. So, about INR 10,000 crores assets moved. Now the earnings, which the asset services division used to make on these clients was lower than what they do from their other clients. Because these were largely wealth clients with only minor clearing services and all . Hence, on the remaining book the yield has gone up. It's just mathematical. It's not that there is something di fferent that has happened there and on our offshore plans, DIFC as I said, is now fully live functional. Business happening every month, revenue coming in. At an RM cost level, we have broken even, of course infrastructure costs in all another 5-6 months, we should now breakeven. And then we have about 3 RMs there. We may go to 5-6 over the next 12 months depending on how it shapes up. Singapore, we are just in the process of thinking through on how we want to do. I think we'll first want to focus on Dubai and take it to the next level and then maybe add Singapore because the competitive intensity in Singapore is significantly higher, and the cost of people and the time taken to breakeven is longer. So, we may want to prioritize Dubai more than Singapore at this point in time.

Sure, sir. So, as you said about the yields. So, like going ahead should we see that yields in clearing business to be in excess of 150 basis points or should that revert back to 130-140 basis points of fee?

No, it should remain at this level. It will not revert back unless there is a structural change in the interest rates and all which takes about 12 to 18 months to take impact.

Sure, sir. And sir, just one question on the transactional income in this particular quarter. So , like we have seen some good pick up there in the Nuvama Private business. So, like what led to that?

So largely two, three things. I think given that there was volatility in the secondary market. I think activity in the unlisted space picked up. We've not done credit down selling still. I mean I think that is also one thing which is happening in the market in a big way. Direct transactions in the markets are increasing as a trend is what we are seeing. And I think we just participated in a few transactions and that led to that income. It should become part of course in my view, in the wealth management space because more and more clients, in addition to putting money in funds also want to do direct deals and direct transaction and unlisted as a space over the last 3-4 years has grown significantly.

Sure, sir. Thank you.

Thank you. The next question is from the line of Abhijeet Sakhare from Kotak Securities. Please go ahead.

My first question is just to get some clarity on the asset class mix for both wealth and private divisions, especially pertaining to the ARR assets b etween how much would be equity, listed, unlisted and rest of it?

So ARR assets in private largely for us is not equity. We've just over the last 8-10 months started doing more PMS and AIF. So, our impact, therefore, on the positive and negative MTM is lower than rest of the street. It's more non -correlated asset classes. So, it includes real estate funds, private equity funds, infrastructure funds, credit funds and now listed equity funds also getting added there. So that's how the split is. In terms of wealth, I think it will be more 50-50, so 40-50% would be listed equities and balance would be non-correlated asset class.

Got it. Thank you so much. And secondly, a bit of a qualitative question. So, we operate across the spectrum asset management to wealth and capital markets. So , is there a way to quantify what would be, let's say, synergy benefits or what would be the likely sort of franchise value in terms of having everything within the firm? And how much extra revenue do es it create for the overall firms?

Interesting question at this time. So , I think over a period of time, the value gets derived. The way we look at it is, it's like a flywheel. The customer can enter in any part of the business. So, for example, and I'll give you a critical construct and then tell you practically where we are and what we have achieved. So, customers could enter into a fund of asset management and could be a pre -IPO fund or a private equity fund. Technically, you have a shot to becoming investment bank for the IPO. And at the time of monetization, you c an get access to the wealth for the promoter and then if you have an HNI in an affluent division, you can also explain the services to the senior management of that company. So that's just one construct. There are many such use cases like asset services and wealth, investment banking and wealth. I think around 10% to 15% of the revenue is what we think one can add by bringing out these synergies across the board and that's a straight through pass to the PBT because there's no extra cost apart from the incentive or the incentive you will provide for creating this ecosystem. That is the only extra cost. But otherwise, it's a straight through pass through the PBT I think that's where we have reached right now. And the areas where we have sort of tried to focus more is between the investment bank and the private division. I think that is where the highest level of synergy lies, and some, let's say, in the mid -cap equity research and wealth division and so on and so forth. So, it's an ongoing process. It's easier said than done because people of different businesses take time to understand the nuance of each aspect and why they should do and why it is beneficial for them. But once you taste success , once any individual taste success, then we've seen that it becomes widespread in that division and then it follows through from there.

The next question is from the line of Dipanjan Ghosh from Citigroup.

Just a few questions. Now we see 1 month into the quarter, in terms of activity levels on the wealth side, both on incremental flow on the ARR side or on the transactional pipeline, how you see things kind of play out, if you can give some color on that? Second would be on the transactional income that you are booking in your both Nuvama Private and maybe a little bit of the Nuvama Wealth Management segment also. In terms of quality of the underlying product that you're really down selling, if you can kind of break it up or maybe give some color so that we can get some understanding of how this should be on a more steady state-run rate basis. And lastly, if the markets were to remain sluggish for, let's say, a prolonged period, what sort of expense levers would you really have to kind of manage your margins? Or do you expect the margins to sustain at current levels?

So, the first one, I mean, I don't know whether we are allowed to answer, but I'll still do that. We are not seeing any significant negative impact either in the transaction flows, or ARR in both the Wealth businesses, at least in the month of Jan. I think where we are seeing impact is, of course, broking volumes, which has come off. But I think Jan again is coming back in that sense. But in terms of the other areas of business, right now, at least, we have not seen any negative impact flow through. In terms of transactional income, let's look at Wealth first. So basically, there are 3-4 categories, which fall into transactional income. There we don't call ARR and transactional. It is Unlisted, fixed income, MLDs largely. And it will be dominated by fixed income. I think more than 80 - 90% would be fixed income. And between unlisted , fixed income and MLDs also, to some extent, I'm saying unlisted is sporadic in that business, it's not like a BAU. But fixed income is BAU , l ike every month . And fixed income for that client segment is a significant part of their asset allocation and as we all know that mutual fund fixed income does not attract flows from individual clients. The large part of mutual fund fixed income, 85 - 90% still comes from corporates and institution. So, the fixed income allocation of individual sits in bank deposits and that remains to be a large opportunity, and we tap it through direct fixed income. So, it's fairly steady and consistent in that sense. When we come to Nuvama Private, it's a combination. Again, fixed income is a big component there followed by, I would say, a bit of MLD, followed by a bit of direct deals, direct deals more in the unlisted space, very little maybe in the credit space, if we find a transaction in some fund which has an overflow and passes our diligence, then we may offer to our clients. So largely this. But between these 4 , opportunities keep coming and we keep repeating that. In terms of sluggishness, I think if there's a sustained and prolonged sluggishness, there are discretionary expenses, which we have, like there are conferences, there are events, there are marketing events. I think, in general, the travel cost come down, variable expenses, variable employee expenses. So those would be like at least 20- 30% of the cost. And today, if I look at our variable cost and fixed cost, our variable cost is actually at the same level as fixed employee cost, given how we are performing in the business on the overall level. If you are saying that everything becomes sluggish and prolonged, that level, of course, comes down. So, there is a 20-30% play that is available. And when I analyse our cost income today, let's say, we are sitting at 54%. And this Dipanjan we are now taking a 3-year view. Now we are clear that in 3 years, Wealth will move from 65 to 60 %. Asset management, which is now at 127%, will at least break even or become like 80-90%. Asset services at the same level. And I think even if capital markets deteriorate by 20% from here, given how our business is proportioned, our cost income will remain at 54%.

Got it. Got it. Just 1 follow -up, if I may. In terms of the RMs that you have added , the productivity pick up, that should play out over near to medium term. Now obviously, on a low base, you're currently operating at a flow to opening, which is significantly strong, like north of 30%, as you mentioned. How do you see that changing as the business scales up and also, the productivity levels pick up? I mean, how do 2 things really work in parallel?

I don't think this to slow down significantly unless we meaningfully reduce capacity addition because right now, if you see in both the businesses, the productivity of new people has just started to play out. It's not even play ed out. Like in the Wealth business, if I look at our RM cohorts, more than 40-45% is less than one year. Right. Now, 45% of people less than one year are doing, let's say, around 1x or less than 1x. When they move, and I'm saying there will be attrition. So even if 50% of that moves to more than three -year bucket, that's like a 4x jump. So , in both the businesses that is yet to play out, which is why we keep saying that there will be a cost income advantage when this capacity starts adding over the next three to four years. And maybe, yes, I mean, two, three years down the line, on an opening AUM, we may not get 30 -35% of incremental flows. But between mark to market and flows, I don't think that to come down below 25% on an overall basis.

So, if I understand correctly, you're saying that the AUM growth even two, three years out should be 25% assuming mark to market is more steady and normalized?

Correct.

Got it. Thank you, sir and all the best.

Thank you. The next question is from the line of Mohit Mangal from Centrum Broking Limited. Please go ahead.

Yes, hi. Thanks for the opportunity. So first is in terms of the RM attrition. I mean, in the last call, you said that you have RMs in the big league, which actually produces, maximum revenue for us. So just wanted to know, like, in quarter two, we lost around two RMs. So how has been the movement in that category in Q3?

I think Q3 was actually zero loss and when the volatility increases in the market, the RM attrition also keeps coming down.

Understood. Secondly, in terms of the cost to income ratio, right? I mean, you just said that the wealth will come down from 65% to 60% and we have also seen that, I mean, the competition is ready to pay more. So, are you a little confident that, you'll be able to retain those RMs with the lower cost or in the sense at the same cost? Just wanted to understand that.

So again, let's segregate both the businesses and also, you have to understand that when you say pay more, it always means fixed cost, right? And what people actually make is a combination of fixed plus variable. And variable is largely a function of how much monetization opportunity a platform can provide. And all platforms in wealth management are not equal because of the number of products, access to opportunities, access to in -house products, access to investment banking deals, institutional equity block deals. Everybody doesn't have all this. So, the ability of the RM to make money on this platform from their clients is significantly higher, which basically ensures that they end up making a higher variable. And once you have spent some amount of vintage on a platform to go out and to recreate it, it takes time and long. So, you will see that movement of people when it happens from one place to the other. Actually, performing people move less. It's underperforming who move more and performing people sometimes move for change in role, change in position, or some significant opportunity. It's not that they keep jumping. So large part of the attrition noise is actually not in the performing bracket in the wealth management industry. And we also face that challenge. When we go out and we want to recruit, it's not easy to get performing people, even from moderately successful platforms.

Understood. And any change in the fixed cost to variable cost component, any change in the formula for that, for RMs, or it has remained the same?

No. Largely the same. No change.

Okay. Thanks, and wish you all the best.

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

Congratulations on a great performance. My questions were on the loan book only. I mean, you had said it was calibrated, but actually if I see the loan book has been relatively stable given the market conditions. So, I wanted to know in terms of calibration or better quality of loan book, what have you done? Is it just more granular in nature? And how do you expect to grow this? Is it the number of clients because the market remains a volatile thing? Thank you.

You have to understand our loan book. It's not necessarily margin trade financing, which is linked to the levels of market and market activity. We have loan against shares. We have ESOP financing. We have loan against AIF funds, which typically wealth clients take for either leveraging and improving their returns in those funds or for temporary liquidity. Margin trade financing is a small component of our book, which is more correlated to the market. What we have done is that, in some cases like in our ESOP loans or loan against shares, I'll just take one specific example and that will give you a sense. Like people used to borrow against their ESOP and then sit on it for a year, 2 years’ time. We thought essentially that in a rising market, that was an okay thing to do for the client. But given where we are right now, it may not be very wise to be leveraged and hold on to your ESOP when valuations are sitting at this level. So that was one point of view, which was client related. And therefore, we said that we want them to borrow, yes, fine, exercise, but then sell and diversify. So, we changed the structure of our rates. We made it extremely competitive, less than 30 days and then increased post 30 days. So that induced the behaviour of people moving out and moving into other assets. So, the book remains same, but more people borrowed. And your ROE also improved simultaneously in the process because you have a processing fee on selling, you have a brokerage, which if you annualize 12 times, it increases. So that gave us the capacity to access more clients with less capital and overall led to an improvement of ROE in the business. Now with this in place, we can expand our book size, we can go to more corporates, we can add more clients, we can allow more people to borrow. But we don't want to, when I said we can grow the loan book, I want to make myself clear, we don't want it to be come some dominant contributor of our revenue. But like one year we've kept fairly steady, we can now look at it increasing with the size of our scale of our business and not just remain flat.

Excellent, sir. Wish you all the best.

Thank you. The next question is from the line of Ashish Agarwal from Oaklane Capital. Please go ahead.

So, I have a question on the ownership. So, what is your view on PAGs long term ownership in the company? Also, how does PAG add value to your company, basically you have mentioned that it adds strategic value, so how does it add value? So yes.

What was your first question?

So, what is your view on the PAG's long-term ownership in the company?

Okay. So, see, PAG essentially is a fund, right . And it's like Blackstone , Advent. So, this is largely an alternative investment fund, and private equity happens to be one of their key areas, and India now happens to be one of their key sorts of investment thesis. And we are a reasonably successful company in that portfolio. The fund life is up 2030. But any private equity fund always enters into an asset with a view to exit at a point in time. So, it's never like permanent. So, they will explore opportunities in their normal course of business. We wouldn't know more than that. In terms of strategic value, see, I've always maintained that, when a private equity actually enters into an asset, it's clearly entering to create value in different components of the business , and take the multiple higher , valuation higher. So , in a sense, it's completely aligned with all the shareholders. And the way they add value is they will find pockets where your operating efficiency is low, your capital efficiency is low, or are you not looking at some strategic target market, which you should be looking at . How do you bring synergies between various components . So, it's more strategic and a business owner kind of a mindset. They have extreme amount of learnings because they've invested. And I would say any large private equity invests in so many businesses, across so many markets, that they are able to see some mistakes, which typically management s make who are in their business, and they're able to point it out, and help you clear that, and help you grow faster than the others. I think that's one and also the focus on governance and relationship with stakeholders, like lenders, rating agencies, and all. I think those are the things which bring an immense amount of help in having a large bulk bracket private equity as your promoter.

Okay. Just one more question is that what is the time frame that you look to breakeven the asset management business?

As I said, in our company, we load allocated costs equally to all businesses. If we remove that, they are breaking even now. But with that allocated cost loading, I think by the time we crossed about INR 20,000 crores, so maybe another 12 to 15 months.

The next question is from the line of Sanketh Godha from Avendus Spark.

Sir, we see that you added almost 600 families in 9 months in ultra-HNI space. And if I do 9 months net flow figure, it is INR 7,300-odd crores. Sir, just wanted to understand, this INR 7,300 crores is largely driven by mining the old 3,600 families or this 600 actually have added much to numbers or not? And if they have not, then how do you expect it to play out in subsequent quarters or years, in a sense? And I think it's a similar trend I see in the wealth business, that family additions are there. Just wanted to understand the waterfall, whether it is more driven by family addition or client addition? Or is it mining of the existing customer? If you can give a waterfall in that thing, it will be helpful to understand how it works?

Typically, Sanketh, it's a combination of both. And in the Wealth business, for example, we've added about 15,000 families in the quarter and maybe 75,000 in the year. But out of that, only 10%, 15%, 20% will be relevant. And the contribution into net new money, 30%, 40%, 50% will come from, let's say, the new families and balance comes from the old. Actually, we'll also share this data. I think going forward, we'll look at them how we can share. The new family typically, when they come in anywhere, whether it is wealth or private, it doesn't happen that you get 100% of their investable flows in one go. In some cases, it may be a possibility, but more often than not, it starts with a product and then it keeps adding, keeps adding, keeps adding. So, it is not fair to assume that if you add 600, their entire investable surplus will come to you. I would say maybe 20% would come now, and then it keeps adding over the following years. So, depending on year-to-year, this mix will keep changing, I think 30- 40% is safe to assume would come new clients and balance from mining of old clients.

Got it. Perfect. And second question, sir, is to understand from both in wealth and private, how much of our revenue concentration or AUM concentration is linked to ML D’s? And if there is any specific -- I mean, basically, just wanted to understand MLD's concentration into the entire revenue pie of our, if you can give that break…?

Less than 1%, I mean hardly anything. I mean our MLD sales total would not be more than INR 50 - 60 crores a month. I mean we don't actively encourage MLDs on our book, we are actually bringing that book down, because we don't want to have the hedging risk. And second, we don't pay significantly on that as a commission because we want the cost of borrowing down. So not more than INR 50 - 60 crores, hardly 1-2% of our revenue would come from MLD. Sanketh, before the tax change, it used to be reasonable. But our own ML Ds, I mean, it's not a significant revenue provider to us.

Got it.. And sir, the reason I asked this question is that in 1 of the questions, you said that the MPIS net flows 65-70% is AIF, PMS and mutual fund and 30-35% is insurance, fixed income and MLDs.

So that MLD would be , let's say, of other issuers who still are issuing some, but that also will not be big. Like in our fixed income, we include MLD in fixed income only, more than 90-95% is vanilla fixed income. MLD, now I think across the market, except maybe one player, everybody else, MLD has come down significantly, only two players. I think, one we all know, and the second one is an unlisted wealth management player. Otherwise, across the board, MLD has come down significantly post the tax change.

The next question is from the line of Nishant Shah from Millennium Capital.

I just have one clear question to ask. You mentioned in your opening remarks, that there may be some postponement of flow activity or deal activity. And earlier in the call, you also talked about how January has been relatively steady. I am just re-clarifying this part, again, like do we see some postponement of flows given capital market activity slowing down. So not a lot of promoters unlocking value, not a lot of ESOPs getting encashed. So does that kind of likely reduce flow activity until the markets kind of like settle down a bit? Or how should we kind of think about flows going forward? Medium term, I take your point, like it's probably irrelevant, but like more in the 6 months' timeframe.

So as of now, actually, Nishant, we are not seeing, we were discussing amongst ourselves that logically, this could happen because prices have come off very sharply. So maybe people who wanted to do QIP or IPO may want to wait, but the filings are still going on at the same pace. I mean, our teams are saying that has not come down. People are saying that, okay, valuations were significantly higher than what we had thought earlier. Now it looks more reasonable, and we want to go ahead , because our plans have not changed. Maybe some private equity funds who want to exit through IPO, they may want to delay because for them, it's not necessarily related to plans around their business. It's more maximizing the IRR. And if that they can delay by one month or two months, it may be okay, but that also they're not s topping the filing. But on the promoter side and ESOP encashment and all, we are not seeing anything. I am just saying that if it becomes prolonged, that is one area that can get impacted , but if you're asking me on actual activity side, are we seeing that change, as of now, no.

Understood. And second question was on just your clearing - F&O clearing business. There's been a slew of kind of regulatory changes, but not a lot of like real impact on the premium s traded. So how is that business kind of shaping up? You mentioned -- last time we have spoken, you had mentioned that you have a long pipeline of new clients, hedge funds that you want to add as well. So, any outlook that you can give per for the coming year for that part of the business?

Outlook, actually, we don't give. But all I can say is that one, of course, the premium levels are back. And I think January, I was reading one of the reports of one of the analysts in the call only, that both for BSE/NSE, even the premium turnover is back. But for us, actually, the premium value matters, and that is reasonably int act and new client addition, I'm not talking small clients , t hese are large billion-dollar clients. They have not stopped activity, either taking offices on lease, racks on lease, hiring of people. So, I can only say that the momentum o r the activity, we have not seen a slowdown. And when we spoke to them, even after all this , India remains within Asia their pick as the next largest profit pool is 20% of India in derivatives market. So, it is a long time away that we will go away from here , addition is only happening. And many participants globally have still not come. They are still looking to come to India. So, I am not actually sensing a slowdown in activity there.

The next question is from the line of Vivek Gautam from GS Investments.

Just wanted to know about your statement, you said that the coming quarters will be better. What could be the reasons for that? And how is the opportunity size looking for market in terms of the volatility, which is now engulfing Indian market?

I think coming quarter will be better in two things. One was the yields in the private should come back to the 80-85 bps and NII income in the wealth management business, because both of which underwent a depression due to the same reasons w hich were temporary nature , so that will reverse. In terms of overall activity, I think institutional equity volumes is the only place where we are seeing some impact. Other than that, largely things remain to be in place. I don't think we have an impact on the business. But yes, we have to be watchful of the global situation. I mean there is a significant change in leadership in the US . He is coming out with tariffs and other things, which have a b earing on their inflation, which means it has a bearing on their interest rate, which means it has a bearing on their currency, which basically is has a bearing on everybody in the world. And how that plays out, how each country reacts and what it does to the emerging markets, I think there are too many factors to be considered to be able to give a calculated call on how it will go. All I can say is that activity levels of clients have not gone down. And we are not seeing this negative chatter or sentiments playing in large parts of the business, except broking volumes where there has been an impact, but I think that will get covered up with the positive activity in other areas.

And how much of the broking contributes to our business, because I believe most of your offline brokerage has now shifted?

In total, if I look at our overall revenue, our institutional equity revenue would be in the range of 12-13%. And within Wealth Management, if I look at broking, it's less than now maybe again 12-13%. If you see a 10% fall in both, you are actually seeing a 2-3% change in revenue.

The next question is from the line of Anirudh Agarwal from Valuequest Investment Advisors.

Question was on the lending business. So, if you could just talk about how much capital you've allocated to the lending side? And what are the current ROE that you're making? So, you spoke about improving the ROE profile of this business. So where is it now? And what is the target ROE that you would be comfortable with in the lending side?

So, the way we look at lending is not actually a business, it's a product, actually nothing neither broking nor lending, everything is a product, because your end client is same. And overall book size is about INR 5,000 crores, and it's split across largely three products, ESOP financing, loan against securities. I'm saying securities not shares, because it includes everything. And third is your MTF. MTF out of this overall INR 5,000 crores would be more or less around 20%, which is people who buy, and rest 80% is above two. And ideally, the way we look at this, is that this is not the only product the client should be consuming for us , because if it becomes the only product, that the client will consume, then at an ROE level, you will always be inferior, because you are lending to the super prime client , at the finest possible rate , against the best available collateral, and there has been no credit event for the last 10 years. So, you cannot hope to make a large ROE unless you leverage 7x, 6x, which we don’t do. We run an overall book at 2.5x leverage. So therefore, your ROE actually comes from doing other activities and other products with the client , which would be , let's say, some buying, selling, broking, some wealth management. So, if you put everything together, the wealth management whole cluster ROEs are now upwards of 22%. We were sitting at 16-17% a year back. We are now upwards of 20- 22%. And I think at 25% is a level where we can then say, it's good enough from there, you can keep on expanding the uses of capital and keep the ROE impact and drive more growth. So that's how we look.

Got it. Second question was on the MPIS piece in the Wealth business. So, the incremental growth that we've seen in this quarter, is that also la rgely on account of increasing PMS/AIS/MF? Or there has been some activity on fixed income, MLDs or insurance in this quarter?

So, insurance is not significantly high in this quarter as compared to previous quarters, but fixed income is high. And so, it's a combination of all. So, your MF, PMS, AIS, that trails adding and of course, fixed income was high. Only out of those three, this kind of an impact cannot come in the quarter. So, it has to be both. I think Q4, we will have insurance play coming in because largely, Q4 traditionally has been big on insurance for everybody.

Okay. And there is any indication of the surrender value regulations change on the insurance front? Any change in commissions, etc, on that?

Not for us, really, because our persistency ratios were best in class in the industry . We are actually saying that we want to have a positive impact of this change because we are one of the few that insurance company doesn't have to worry because of this surrender charge.

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thank you once again for sparing your time. I think we've had a decent quarter. Now we'll focus on Q4 and see you again after three months. Thank you for coming again.

On behalf of Nuvama Wealth Management Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.