See Nifty beyond 4,600 by Diwali or year end: Nirmal Jain

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS India Infoline Q1 cons net profit up at Rs 51.7 cr ALSO READ See latest News about India Infoline See previous management interviews See what other Experts & Brokerages are saying about India Infoline India Infoline BSE | NSE 10/02/12 Are Mutual Funds betting on India Infoline?

India Infoline's consolidated net sales stood at Rs 256.3 crore as against Rs 186.7 crore and Rs 268.4 crore on a quarter-on-quarter and year-on-year basis respectively. The company's consolidated net profit was Rs 51.7 crore as compared to Rs 25.9 crore and Rs 49.5 crore on a QoQ and YoY basis respectively.

Nirmal Jain, CMD, India Infoline , feels the markets will look at corporate earnings, monsoons, and global cues. He believes India is well placed on macro fundamentals.

Jain rules out the Nifty slipping below 4,000 and sees it crossing 4,500-4,600 by Diwali or by the end of this calendar year.

Here is a verbatim transcript of the exclusive interview with Nirmal Jain on CNBC-TV18. Also see the accompanying video.

Q: How is the insurance market looking, how is the brokerage market looking, and how is the credit card, or the kind of fees you earn from that part of the market looking? Are we seeing an overall pick up and how much is it getting translated into business?

A: The market sentiment has no doubt improved. The biggest and the most leverage impact has come on equity volumes. Equity volumes have picked up significantly and since most of our business is online, and our operating leverage is high. You see certain X percentage impact on volumes and the impact on bottomline is higher than that. This would be true for most of the retail brokers.

But life insurance business has not done well. I don't have official numbers because the numbers for June are not out on the Insurance Regulatory and Development Authority (IRDA) website. I believe that leading private insurance players would have seen a decline of almost about 40% in volume on a year-on-year (YoY) basis. While first quarter is seasonally a slack quarter for insurance, when we look at YoY we are looking at a slack quarter of last year versus a slack quarter of this year. Then also, we see a significant decline which is almost an about 40% decline in volumes. Our business has got affected in similar way.

One thing good about life insurance business is that in the year 2008-2007, most business was in unit linked products which are more like mutual fund products and are not pure insurance products. But if you see our business, then in last quarter 50% of our life insurance business has come from endowment products vis-à-vis 27% a year before. So, the quality of business or the product mix has improved but the volume of business is down on the life insurance front.

On the equity front, we have been very buoyant in the first quarter. In our credit business also, there is lot of caution, so has not picked up. Most of the banks and non-banking financial companies (NBFC) companies burnt their fingers badly particularly in the unsecured portfolio, so they are cautions. Mortgages also have picked up but people are still worried about real estate prices and sentiment. There is a pick up but there is a hesitance in credit market. It is quite good in equities.

Q: Sebi changed the rules on loads on mutual funds. Could you tell us what kind of an impact that could have and perhaps a bit on the commodity trading part of the market? How much of an impact does the removal of loads do and what exactly will happen there? Will the mutual fund still compensate distributors like you through some other channel or that has pretty much gone out of the window?

A: I think that has pretty much gone out. If you don't have any upfront commission from the customer, it is very difficult to compensate the distributor. What will happen is that mutual fund industry will consolidate. The larger players who have their own distribution basically will be able to distribute the small ticket items. Players like us will also look at unbundling the services because there is one part which is execution of mutual fund transaction, there the charges can be nominal or zero. You can have advisory fee which can be say I charge Rs 1 advisory fee per annum and I don't charge anything else on the mutual fund.

In a way, the development is good but maybe a little ahead for Indian markets because you require distributors to push through and increase the penetration of mutual fund in smaller towns and with smaller retail customers.

The impact of this will be that larger mutual funds will be able to survive because they can have distribution all across the country and can mange it. The smaller AMCs will have to consolidate because they will have much lesser business. As it is, they were in difficult conditions in terms of profit and loss. If the volumes go down further, they will consolidate and get merged with larger AMCs. That is my personal take on this.

Q: How is the retail consumer finance business this June quarter?

A: This quarter, we have started lending cautiously. We were fortunate because in August-September we suspended our fresh lending. So that denominator stops growing. But even then our NPAs are very comfortable on mortgage portfolio. They are less than 1% and on our total portfolio they are about 2% which is a very good state in terms of credit quality.

We have started lending against residential and commercial property again in May. We did about Rs 28-30 crore business in two months. It takes 15-20 days to get a deal and to close it. I think this business will pick up, there is a good demand. India has nothing to do with sub-prime. Our credit penetration is very low, housing demand also is likely to be buoyant. I don't think that one should worry about the business from a medium-term to long-term perspective. But because we are coming out of a phase when everything was looking very depressing, people are cautious. It is just a matter of time before sentiment picks up.

Q: We have seen a fairly decent resilience of this market after an expected dip. Do you think we have begun to form higher bottoms? What would be your view be that this market looks good to go beyond 4,600 mark in this quarter?

A: I feel there are three factors that market will look at. One is corporate earnings, so maybe in the next 10 days you will have a number of large leading corporate results. That is one indicator that markets are waiting for.

The second is more news on the monsoon because agriculture and monsoon can have cascading impact on number of other industries. We all know that rural demand has been buoyant for fast moving consumer goods (FMCG), auto, and many other products. So, monsoons can be a key factor there. If we are unfortunate and have drought, then it can be a spoil-food for the market also.

The third factor is global cues where we can talk about decoupling. I don't think we can completely be ignorant of what is happening elsewhere as it affects sentiment, it affects flow of capital.

I think that on macro fundamentals, we are very well placed. I don't think that market will go much below 4,000. On disinvestment, we are seeing that NMDC should be more than Rs 3,000 crore. Some of the policy reforms you will now see coming not in the budget but separately. I am quite positive that there is fairly a good chance that the market can cross 4,500-4,600 by Diwali or by the end of this calendar year.