A pick-up in earnings could lead to moderate returns in 2019: Shilpa Kumar

India will continue to be the fastest-growing economy in the world with the most attractive demographics, says Shilpa Kumar

A pick-up in corporate earnings could lead to moderate returns in 2019, says Shilpa Kumar, Managing Director and Chief Executive Officer of ICICI Securities. In an interview to Sundar Sethuraman, she says equity issuances are showing signs of a revival. Edited excerpts:

What’s the one-year outlook for the market?

The dollar beat most asset classes this year. The Nifty, gold and bonds provided similar returns. Risk assets (mid-caps and small-caps) underperformed significantly.

Long-term expected annual returns on Indian equities have been about 15 per cent. In any calendar year, returns have either overshot or undershot, depending on changes in investor expectations.

Indian equities are unlikely to beat long-term expected returns in 2019. We are in an environment of global quantitative tightening. There are significant geopolitical risks, possibility of downgrades to domestic GDP growth and earnings, and of a slowdown in policy reforms in an election-heavy year.

However, despite the downgrades, India will continue to be the fastest-growing economy in the world with the most attractive demographics. Corporate earnings are expected to pick up, which will enable India to post moderate returns in 2019, especially with valuations moderating from historically high levels. 

Do you expect a pick-up in equity issuances next year?

Equity issuance has dropped significantly this fiscal year. The drop is largely due to high volatility in equity markets. We expect this trend to continue till we get clarity on major events such as the elections, Brexit, oil price volatility, and global trade war. However, we are witnessing a fair number of rights issues and buyback activities.

Which sectors is ICICI Securities bullish and bearish on?

We expect the banking sector to show improved growth, given the significant base effect and normalisation of earnings of corporate banks. We are positive on consumer goods and paint companies. Despite the challenging environment, consumption demand in terms of volume growth, led by rural India, has not disappointed and will continue to sustain. Also, two- and four-wheeler passenger vehicles growth should rebound after the temporary slowdown. Pharma growth is expected to be robust but recovery in the US market will be key and we remain selective in this space. Metals and energy could see earnings growth challenges as commodity prices correct, while IT could see some moderation in performance after a stellar 2018.

Your Q2 numbers didn't enthuse the Street. What's the outlook for the second half and next year?

In spite of how markets are, we stay focused on growing the fundamental levers of the business. We try to make sure that in every industry we operate in, we are better than the industry average. While we don’t give guidance, the long-term fundamentals of our business, be it increase in the formalisation of savings, on the one hand, and greater demand for capital for the industry, on the other, are very strong. We remain bullish on the India story and continue to grow our brokerage, distribution, advisory as well as investment banking business.

Do discount brokerages pose a threat?

We are a full-service brokerage and our 4.2-million customer base find this of great value. Besides ease of trading and transparency of costs, our platform provides several value-adds like research, portfolio analysis, and tax planning, which an investor finds useful. 

Will Sebi's move to cut MF expenses affect your profitability?

Every player who operates in this space will see an impact. It’s an all-encompassing circular. But fundamentally, as a country, we are in the early stages of investment trajectory. ICICI Securities is a big participant in that. One has to continuously think of reinventing itself. 

Any plans to enter newer businesses like NBFCs?

Currently, there are no immediate plans on that. But when situations and things emerge, one looks at that and does what is best for the company and stakeholders.