IIFL Securities believes bank will do well in the coming quarters as balance sheets are much stronger than what they were before Covid, corporate balance sheets have had matching improvements in strength, credit growth is beginning to accelerate, gross non-performing assets ratios are trending down, P&L provision load is rapidly reducing, R Venkataraman says in an interview to Moneycontrol.
With more than 28 years of experience in the financial services sector, the Chairman of IIFL Securities believes Indian economic indicators are on a sound footing, and Nifty may outperform other markets.
On the economic growth front, IIFL Securities is not expecting upgrades – rather they are below consensus at 6.5 percent for both years (FY23 and FY24). They expect a round of downgrades in growth estimates very soon, says R Venkataraman who holds Bachelor’s in Electronics and Electrical Communications from the IIT as well as a Master’s in Business Administration from the IIM.
Do you think India’s exports will slow down given the increasing risk of a global slowdown?
Yes, the probability is very high that exports will slow down. Consumer sentiment indicators are down in US, EU and China. And if Russian natural gas supply to European Union is squeezed, industrial activity will also fall – all in all, this does not bode well for exports.
Do you expect the margin pressure for steel makers to be eased in the second half of FY23?
The second quarter margins should be much lower than first quarter as peak coking coal plus drop in steel prices will hit together. Second half is not necessarily looking much better with steel prices continuing to slide in India and globally, and coking coal having rebounded from August lows, plus sluggish outlook for global/China steel impacting India prices.
Is there any strong possibility of market hitting record highs by Diwali or will the weak global environment cap market upside in rest of financial year?
Short-term market momentum is strong. However, the Federal Reserve will raise rates and double the rate of balance sheet run-off to $ 60 billion per month, and this will result in liquidity tightening.
The slowdown in economic growth we are witnessing does not seem to be accompanied by a fall of inflation to anywhere near acceptable levels. Hence liquidity tightening should accelerate from here, and result in brakes being applied to markets. Having said that Indian economic indicators are on a sound footing, and Nifty may outperform other markets.
Do you see any risk factor that can force the market to break its 52-week low made in June this year?
If interest rates rise very fast and by significant quantums in developed economies, then there could be sharp capital outflows in a repeat of what happened in Q1FY23, and bring down markets. INR can fall and inflation can rise as a consequence.
What are the themes that can generate multibagger returns in coming years?
Mid-cap auto ancillaries like Craftsman Automation, select chemicals names, construction companies, capital goods, can deliver strong returns.
Do you expect better-than-expected economic growth in FY23 and FY24, though the global environment is weak?
We don’t expect upgrades – rather we are below consensus at 6.5 percent for both years. We expect a round of downgrades very soon, starting with acceleration in growth estimates of advanced economies followed by Emerging Markets and India.
Are you super bullish on the banking & financial services space?
We think bank will do very well in the coming quarters – balance sheets are much stronger than before Covid, corporate balance sheets have had matching improvements in strength, credit growth is beginning to accelerate, gross non-performing assets ratios are trending down, P&L provision load is rapidly reducing.
This partly will get interrupted by the slowing down of the Indian economy, but not very drastically, as we think monetary tightening in India will be much less drastic than in advanced economies and hence India will retain charm as an investment destination, and this plus strength in domestic flows will continue to give support.
Financial services such as exchanges, asset management companies and brokerages will see some tempering due to volumes having fallen. Rating agencies will see softening for the next year till capital expenditure cycle begins to pick up (which we expect to happen in 2024). Leading non-banks will be a mixed bag, where commercial vehicle financiers will likely do the best.
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