Markets may remain volatile with selling bias: IIFL Securities chairman

In a Q&A, R Venkataraman says the markets seem to be hoping against hope that rate hikes will not need to be sharp going ahead so as to trigger a global recession

With the US Federal Reserve making its intent clear once again last week as regards its battle against inflation, R VENKATARAMAN, chairman, IIFL Securities, in conversation with Puneet Wadhwa says the markets seem to be holding out hope that future rate hikes will not need to be sharp for global recession to kick in. Edited excerpts:

Do you think the market behaviour has been somewhat irrational of late, with respect to the outcome of central bank meetings?

Markets seem to be hoping against hope that future rate hikes will not need to be sharp for global recession to kick in. But inflation data has been unfavourable, triggering bouts of panic selling.

Inflation rate continues to be high. Even if it gradually recedes or stays above target levels for a significant length of time, rate hikes will be sharper, and markets may continue to see volatility with a selling bias.

The recent manufacturing Purchasing Managers’ Index (PMI) numbers back home have been disappointing. Inflation, too, is not on a tight leash. Why are the markets and investors ignoring key data points?

While PMI numbers have been weak globally, touching 50 and bordering on contraction, in India, both the manufacturing and services PMI have been in the 57-58 range. So we are doing quite fine.

Recent feedback from banks is that corporate capital expenditure (capex) is likely to step up. The Reserve Bank of India’s data on capacity utilisation in the economy reaching 75 per cent is also encouraging. Hence, a slowing PMI is a problem for others, not India.

How have retail investors responded to market turmoil?

Retail investors over the years have become more resilient to market volatility. Despite markets not being able to hold on to higher levels, retail investors continue to plough money into markets (depicted through mutual fund systematic investment plans, or SIPs, which continue to stay near the Rs 13,000-crore levels each month).

Considering global market challenges, which will have a bearing on our markets as well, we are advising clients to be selective and continue investing in the market through the SIP mode.

Optimism over inclusion of India’s government bonds in global indices has resurfaced. Will the next leg of market rally and foreign institutional investor inflow be driven largely by this event?

It is now expected that India will get into global bond Indices. That certainly has played a part in long yields coming off in recent weeks at the same time as they went up in the US. If it does not come through, the inherent strength of the economy will anyway mean that foreign capital flows remain relatively strong under the circumstances, and even if markets don’t rally, some downside protection may happen.

It seems India Inc is still fighting shy of investing in manufacturing. What is holding it back?

Between tax rate cuts three years ago, still lower tax rate for new facilities, production-linked incentive schemes, relatively low inflation, reasonably firm commodity prices, and very strong government tax revenues, interest rates are down. We have several factors aligning favourably in the next 12-15 months. The global fight against inflation will likely reach some equilibrium and monetary tightening will end. It seems as if India will not suffer either very high inflation or very high interest rates, so the set-up for a capex cycle looks quite favourable.

Do you expect margin pressure for the broking industry?

In broking and mass affluent wealth management, IIFL Securities has been a significant player. Our focus has always been on long-term wealth creation. That has reflected in our approach and resulted in customer stickiness.

Apart from equity, investors are diversifying into debt, alternative investment funds, portfolio management services, bonds, and structured products. The traction has been good. There is increased demand from retail and medium networth investors on the right kind of financial plans to suit their individual needs. Broking is technology (tech)-intensive. We want to complement tech with human touch.

Where do you see new opportunities of growth for business verticals IIFL Securities operates in?

Both institutional broking and investment banking continue to see growth opportunities. Historically, IIFL’s investment business has focused extensively on equity capital markets.

Over the past 18 months, we have invested time and resources to develop the advisory business as well and we are beginning to see the benefits as the business mix begins to diversify. The tech practice, which also includes new-age businesses, has shaped up well.

We are quite bullish on the prospects of capital-raising - both public and private - over the next few years. On the broking side, the thrust has been to invest in tech and to continuously increase client empanelment.