IIFL chief says losses due to currency ban exaggerated

It has been a double whammy for the markets with the US presidential elections and the government's decision to ban Rs 500 and Rs 1000 notes. In conversation with CNBC-TV18, Nirmal Jain, Chairman of IIFL, said it is not a great market for short-term traders but if investors have a long-term view then India is doing better. He said if the medium-term is taken under consideration then the trend is not bearish but more positive and upward. Analysts are saying that demonetisation will have an impact on many industries. Jain says it will not have an impact on NBFCs.He said losses due to the currency ban is exaggerated.Below is the verbatim transcript of Nirmal Jain’s interview to Mangalam Maloo & Reema Tendulkar on CNBC-TV18.Reema: A complete U turn in the sentiment yesterday was clearly a risk on session today is risk off, we have cracked about a 1.5-2 percent what is driving today’s mood?A: Maybe there is Trump effect which is coming after bit of a lag. The interest rate in the US have been going up and that is what is causing bit of a scare about the emerging markets. Market will behave in this manner; they will always have this volatile ups and downs. It is not a great market for short-term traders or day traders, but if you have a long-term views and fundamentally India is getting better. Reema: What about the broad direction, do you think we are headed down from here given what is happening or do you think we should find support around these levels?A: I think if market corrects, I would like to believe that there are good long-term investors who would lend support. So, fundamentally or will you take medium-term views and the trend is still is not bearish, but is more positive and upward. Mangalam: You spoke about the trend being upwards and yesterdays fall are occurring due to the rise in US interest rates how much of the domestic trouble as far as the near-term in demonetisation how much of that is causing to the losses that we are seeing?A: I think that is completely exaggerated because I don’t think demonetisation should have any impact on as I just heard a little while ago on NBFCs or consumptions, those are all exaggerated. Even the most of the black money or unofficial money is all concentrated with few corrupt officials or may be corrupt politicians and is not really a wide spread phenomena which will impact day to day, there may be impact for a few days. However, I think that life will resume and more or less be normal. This is something which is unprecedented and we really have to watch how things pan out, but at least at this point in time whatever cues I get from our clients or from the environment there doesn’t seem to be any panic. Reema: No demand destruction according to you?A: Very high end luxury items you will see some impact, but I don’t think that when you talk about general products or consumption there will be any demand impact. It is just matter of few days that people get adjusted to. I would think that as the prices decline there can be even revival in terms of demand, so I am not pessimistic on demand side of it.Mangalam: The feedback that we are getting from a lot of managements that are coming on the channel is that 50 percent of disbursements for microfinance institutions happen in cash, 40 percent of store level sales for VIP Industries happens in cash, 70-80 percent of car sales have come down on account of this. So, do you think that really demand will not be a problem and a lot of the fast-moving consumer goods (FMCG) companies 40 percent of their sales come from wholesale channels which do have cash in their day to day dealings. Definitely not illegal or corrupt money but legal money gets stopped, liquidity concerns, is that a concern for you?A: Most of these people they can actually - if you start with microfinance these are poor people, they don\\'t have any income tax or any black money problem, it is just testing of the transition phase. It is not that the cash is going out of the system, it will come back in the system but maybe after this shock more people will be using the wallets or the digital payment instead of cash which is very good.If you look at the medium term impact the money getting into banking system will increase the deposit, it will increase the veracity of money, make more money available for credit. So, these are all positive and the FMCG and all those products that you are talking about it is just question of convenience. So, it is just a matter of a few days. I don\\'t think people will start consuming less because the cash has been taken out. As I said the impact of this is very concentrated in very few people. You will find 0.01 percent of population and by and large most people - it is not that they were spending out of their unofficial income, most of the people, middle class, lower middle class I don\\'t think their consumption will be impacted by this.Reema: We have seen Foreign Institutional Investors (FIIs) selling worth Rs 10,000 crore in the cash market since October. A lot of these FIIs trade with IIFL as well. Who are the key sellers, is it largely long only funds who are paring their bets in India and do you expect this FII selling to continue going forward as well?A: I can't share the clients data. In fact our clients may not be the representatives of the entire FIIs universe as well. But FII selling and the buying will continue and the good thing is that there is good mobilisation by local mutual fund and they are becoming a counter balance to the volatility that can always be caused by FII. And in the run up to US election also there was bit of a jittery feeling among some of the FIIs. I won\\'t read too much into it. I don\\'t think FIIs are negative. By and large if you look at most of the long only FIIs or FIIs who are investors and not hedge funds they are looking at opportunity to buy at every decline.