Mkt to consolidate with positive bias till Budget: IIFL

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Mkt to consolidate with positive bias till Budget: IIFL

Nirmal Jain, chairman of IIFL believes that worst is over for equity markets and sees significant improvement in investor sentiments. On the back of this, the broking firm expects to perform well in the coming quarters.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Nirmal Jain, chairman of IIFL believes that worst is over for equity markets and sees significant improvement in investor sentiments. On the back of this, the broking firm expects to perform well in the coming quarters.

IIFL has shown significant improvement on quarter to quarter basis, its bottom-line rose 60%, however it is half of what it was last year in the same quarter.  Speaking to CNBC-TV18, Jain said: "Equity markets have been very sluggish. So it seems to have bottomed out and year should be significantly better for the brokerages or the brokerage related revenue."

In the past few days, the market has been rallying due to strong FII inflows and Jain expects the markets to consolidate with a positive bias till the Budget. "If the FII money continues to pour in we'll see a positive trend in the market," he said.

He is bullish on defensives like pharmaceuticals, FMCG and IT. Market participants with 20-25% equity exposure should increase allocation to equity to 30-35% and watch for the movements of the market, Jain suggests.

Below is the edited transcript of Jain's interview with CNBC-TV18. Also watch the accompanying videos.

Q: Can you take us through your performance? Apparently the strongest performance has come from the NBFC segment.

A: That's right. There is a significant improvement on quarter to quarter basis. Our bottom-line is up 60%, but still it is half of what it was last year in the same quarter. Capital markets have passed through very difficult times, but in this quarter we saw significant recovery, which was driven by our NBFC business and non-equity financial products distribution which includes mutual fund, life insurance and alternate asset products.

Q: What about the current quarter? Do you think we are going to see this quarter turning out vastly better performance both in broking and in the other segments as well?

A: It is difficult to say vastly improved performance, but I am an optimist. After long time we have seen that stock market sentiment has changed. If you look at the market volume for the month of January it was quite disappointing. Vis-à-vis October also the retail volumes were down. But we are seeing a significant improvement in sentiment in February.

Particularly, midcap stocks have started doing well. This is a time when we are seeing our retail investors, HNI investors enquiring. They are talking of topping up the margin or reactivating their account, which has been inactive for quite a while. Equity markets have been very sluggish, last time quarter on quarter we had 9% fall in our equity's broking income. So, it seems to have bottomed out and I would like to believe that this year should be significantly better for brokerages or brokerage related revenue.

Q: What about the commodity segment because that too was down 23% on a sequential basis? What is the interest coming in with regards to commodities?

A: I am not too worried about that because that had a very good run before that and it is more of a corrective phase. But commodities business is definitely penetrating wider and deeper throughout the country. We are seeing more and more people getting involved in trading commodities and currency.

Although, the volume for December quarter on a quarter on quarter basis is low but last quarter and holidays in December might have impacted these volumes. Whenever prices of gold or silver or some other commodities are volatile we see fluctuations in volumes. But in the little longer term these volumes are bound to go up.

Q: Does this rally have more legs, does it go on all the way up to mid March when the budget comes, can the budget rock the boat you think?

A: Till budget market may consolidate with a positive bias because about a month ago most of us were bearish. What has changed significantly is that the inflation numbers are looking better, but more importantly RBI has sent out a positive signal with a cut in CRR. Most analysts and economists they are quite confident that FY12-13 will see rate cut which can be in aggregate as much as to 200-250 bps.

So, this has changed the market sentiment. Along, with this we have also seen that European problems have not blown up the way many people feared. They have been able to find solution although temporary, but for the time being the problems have been pushed on the back burner and sentiment has improved world over.

Another very significant development that has helped Indian market and other emerging market is liquidity because USA surprised entire world by saying that we'll keep our interest rates fixed at very low level for three years. The liquidity which is coming from the US is finding ways into emerging market portfolios as well and we are seeing huge inflows from FIIs in January, which seems to continue in this month also. If the FII money continues to pour in we'll see a positive trend in the market. Thankfully, now midcaps have started recovering which will mean that our retail investors and our HNI investors will also participate in the market.

Q: What ideas are you recommending to investors at this point in time?

A: There are number of stocks which are fundamentally good values and strong. We haven't got a view on infrastructure sector which is still to recover. But other than that some of the commodities look good. Defensives like pharmaceuticals, FMCG and IT sector looks good. We always recommend stocks in that, but now we are saying that a typical portfolio which might have had 20-25% equity should increase allocation to equity to 30-35% and watch for the movements of the market.