In an interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal, IIFL Chairman Nirmal Jain discussed the company's first-quarter earnings, his view on the earnings season and the economy overall, and the outlook on markets.
Below is the transcript of the interview on CNBC-TV18.
Sonia: What are your thoughts on the markets and the earnings season so far?
A: The corporate earnings disappointment was more or less factored in the market sentiment earlier and market has absorbed many larger, bigger problems and have taken them in its stride including the crash that we have seen in China and the developments in Greece etc.
So, market has underlying strength and I would say that markets underlying trend is positive. On a day-to-day basis or on a week-to-week basis, you will see volatility, but if you are a long-term investor with a two- to three-year horizon at least the market looks good. On the macro front, people have been disappointed that things haven't moved as quickly as they expected but obviously in a country as large and as complex as this, you can't overnight turn around things with a magical wand.
But things are moving in the right direction, now people are seeing that order flow has improved, public capital expenditure has improved and also we have been fortunate that monsoon is progressing well and also crude oil prices are stabilising at lower levels. So, all indications are that macro environment should improve and things should look better in the next couple of quarters.
Anuj: Which are the sector that you are betting on right now?
A: IT and pharma are resilient sector and they perform with the market so they look good but besides capital goods, industrial sectors, which are road sector or infrastructure one has to be selective there, stock specific because every company has a different mix in terms of financial leverage as well as positioning to get the new orders. So, all these sectors which are core sectors one should try and find good quality stocks within them.
Anuj: So, how was the quarter gone by for IIFL and what is the outlook for the future?
A: We had a good quarter. Our income on a year-on-year (YoY) basis grew by 30 percent and it was Rs 964 crore and our profit after tax (PAT) pre minority was Rs 119 crore which is 22 percent growth on a YoY basis.
Amongst our weakness, fund-based activities and wealth management as well as financial product distribution have registered a good growth on a YoY basis but if you look at capital market or broking then it has been practically flat on a year-on-year basis.
There has been 1 percent decline in the income and that has been in line with the market because market volumes in April, May, June quarter this year have been significantly lower. Because last year if you remember first quarter was the quarter when there was a lot of activity because the Modi government had come to power.
So, on the whole it has been a quarter in line with our expectations and all our businesses continue to grow. You should know that our financial product distribution as well as wealth management and most of our weaknesses are little seasonal because quarter four is typically much better quarter and quarter one is relatively weaker quarter and therefore we would say that comparison on a YoY basis would be more appropriate.Sonia: So, where do you see bigger traction coming in - in the coming quarters?A: In the first quarter if you look at our non-banking financial company (NBFC) book our gold loan book fell by 15 percent. Gold loan has gone down to 22 percent of our book. Two years ago, this used to be almost 35-40 percent of our book and this has been in line with our strategic portfolio rebalancing that we have always talked about. That we would like to bring gold loan down and that our commercial vehicle has now gone up to nine percent of total portfolio. So, strategically we would like to build a diversified mix in NBFC where gold loan, commercial vehicles, medical equipments/SME all are say, around 20 percent and mortgages account for 40 percent of our book over say, three to five years.Going forward NBFC and wealth should continue to grow. In NBFC we will see book growth because book growth on a quarter-on-quarter (QoQ) basis was not there in this quarter but on a YoY basis we should see reasonable book growth in remaining three quarters and wealth management has done very well in the first quarter. It will continue to do well and broking and capital market is volatile. Your guess would be as good as mine. There we depend on a lot of market volumes. But the market volumes in Q2 at least initial indications are that it should improve and should be better than the first quarter of this financial year.
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