Raghvendra Nath, Managing Director at Ladderup Wealth Management, expects the microfinance sector to continue growing at a healthy pace, offering a sweet spot for future-ready investors, given the size of our country and the demographics at play.
Over the years, the microfinance industry has grown substantially large, with quite a few major players leading the way.
Having more than 29 years of corporate experience and a deep knowledge of the financial markets, Raghvendra Nath says
Considering the current inflation and growth scenarios, he does not anticipate a stronger second half for IT sector growth, as it appears unlikely that the European Central Bank or the US Fed will alter their stance in the near future.
Q: Do you see any threat to inflation numbers that came within the RBI's band of 4 percent (+/- 2 percent)?
In the recent past, food inflation and the consistent rise in oil prices have been the key reasons triggering high and sticky inflation. For instance, a few months ago, we witnessed the prices of vegetables like tomatoes going through the roof, in addition to oil, which was trading at $75 per barrel, reaching a concerning $95 per barrel.
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Going ahead, the deficient monsoon in July and August, combined with slower exports because of the global slowdown and higher import bills owing to the rise in oil prices, is prompting fear of inflation spiking even further.
However, at present, food prices have moderated quite a bit and the monsoon season has concluded normally in India. We are also seeing that oil prices appear to have stabilized for the time being. Additionally, given the multiple interest rate hikes that have taken place in the past several months, the liquidity in the banking system also appears to be under the RBI’s control. In this scenario, we do not expect inflation to pose a very high risk to the economy.
Q: What is your reading on the September quarter numbers of IT majors announced this week? Is the commentary indicating a better second half than the first half of FY24 for IT space?
For the September quarter, the management teams of IT majors have provided a more conservative revenue forecast and a less optimistic outlook for the short term, owing to factors such as project reductions, revenue losses, and cautious clients.
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Infosys has adjusted its revenue projection for FY24 to a range of 1-2.5 percent, down from the 1-3.5 percent forecast in the previous quarter. HCL Technologies has likewise reduced its FY24 revenue growth estimate from 6-7 percent to 4-5 percent, indicating the actual business scenario facing these companies.
Based on the quarterly results as well as the forward guidance, we can conclude that, even as the US economy continues to grow stronger, somehow the IT services revenues remain muted. Though the economy remains on a strong growth trajectory, there is a widespread belief that higher interest rates shall ultimately impact profitability, as well as consumer demand, in the quarters to come.
Considering the inflation as well as growth scenarios at present, it does not seem likely that the European Central Bank or the US Fed will change their stance anytime soon and accordingly, we do not expect a better second half for the IT space.
Q: Do you think the microfinance sector is in a sweet spot?
Given that the microfinance sector has now been around for more than two decades, the growing segment has attained a level of stability, with technological developments contributing to better credit appraisals and collections.
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Over the years, the industry has grown substantially large, with quite a few major players leading the way. Considering the size of our country and the demographics at play, we expect the sector will continue to grow at a healthy pace, offering a sweet spot for future-ready investors.
Q: Do you see stable growth for non-banking finance companies in coming quarters?
The non-banking finance sector is an extremely widespread one, with different NBFCs catering to dissimilar verticals such as institutional lending, vehicle finance and retail customers. Therefore, we cannot offer an outlook on the sector as a whole.
That being said, the revival of the capex cycle, an uptick in consumption demand, a strong rise in the demand for passenger vehicles and overall retail credit growth, all seem to indicate an overall healthy outlook for the sector. We believe that good-quality NBFCs will continue to capture these markets and grow strongly in the coming quarters.
Q: What could be imminent risks for the equity market?
At present, equity markets are near their all-time highs and accordingly, the big question now revolves around the direction it will take, going ahead even as we assess the risk of a major correction. Things remain stable on the corporate side and we do not foresee any major shocks in terms of the financial performance depicted by various sectors.
Similarly, the central bank has spelled out its policy very clearly, so we do not expect a more hawkish stance going ahead. Accordingly, imminent risks for the equity market could arise from the movement of oil prices, because of our import dependency and its consequent impact on inflation. Further, the geopolitical scenario remains a concern, with Ukraine and now Israel caught up in turmoil.
Going ahead, we are keeping an eye on how the developed economies, mainly the US, fare in terms of economic growth and inflation, while also considering how the domestic political landscape unfolds over the upcoming months.
Q: The majority of Fed officials are in favour of one more interest rate hike and need more data indicating abating inflation pressures. Do you think there would be a long pause after one more rate hike?
The US Fed rate is now at 5.25-5.50 percent and there is a possibility of one more hike in the next two months. Such a move would indicate that the Fed does not intend to reverse its policy stance anytime soon.
Having made a strong impact on controlling inflation in the last year and a half, the Fed is not expected to make an about-turn in the near future. Therefore, unless inflation cools significantly and the economy’s growth remains subdued for a significantly long period, we expect a long pause of eighteen months.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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