Over the years, IIFL has initiated various financial services to emerge as a leading non-banking financial company (NBFC). In an e-mail interview with The Hindu , its Group Managing Director R. Venkataraman spoke at length on various aspects of the financial services industry and its growth in the country.
IIFL Holdings Ltd. has diversified into home loans, wealth management, consumer finance in the last few years apart from the capital markets. Will you explain the journey so far as well as the future growth plans?
We are a large diversified retail financial services company with presence in multiple business segments including consumer finance or non-banking finance, wealth management, broking and distribution of life insurance, mutual funds etc. In the last five years we have successfully transformed the business from a broking-led model to a non-banking finance company (NBFC) and wealth management-led model. Going ahead we believe the engines of growth for our organisation will be NBFC and wealth management. Within the consumer finance business also, we have successfully scaled up our home finance and mortgages business. We believe this segment is likely to grow significantly on the back of strong demand for housing. The housing for all by 2022 initiative of the government is likely to give further impetus. Talking about broking, both retail and institutional broking are inherently volatile and cyclical businesses. Last year was good for broking business. We believe retail broking business has enormous long-term potential considering the extremely low level of financial assets holdings by retail investors.
Talking about growth, IIFL has been one of the fastest growing and most stable financial services firms in India and is listed among the top in FORTUNE 500 India list. As we completed 10 years of our listing this year, our profits have shown a compounded annual growth rate (CAGR) of 35 per cent over the decade, income have shown a 47 per cent CAGR, while market cap has grown at 32.8 per cent CAGR.
We have always been a responsible firm and along with stellar growth in future we will continue to give back to the society through our corporate social responsibility program that touches lives across India.
What kind of revenue growth would you expect from the NBFC business in FY16 and what would be the driver for the growth?
We are a diversified multi-product NBFC which includes mortgages - both home loan and loans against property, gold loans, loan against capital markets, commercial vehicle loans, and loans for medical equipments. In the recent past we have seen our gold loan book coming down. In the last quarter it has come down to 18 per cent of the book, where as the growth has mostly come from mortgages loan book and loan against capital markets. Going ahead growth will be driven by mortgages and commercial vehicle finance as the economy picks up.
RBI will announce its fifth bi-monthly policy in December. Do you expect a rate cut by the central bank? If so what would be the impact on the economy, especially on demand for products and services?
Given the fact that inflation is under control and globally commodity prices are weak, we believe that interest rates will see a further downtrend. A low interest rate regime is obviously good for the economy as it boosts both consumption demand as well as capital expenditure. However, we are not too optimistic on the capital expenditure cycle currently given the state of the economy. We believe the capex cycle will start only in the next 12-24 months. Low interest rates will obviously spur demand for consumer finance, especially home loans because EMIs will start coming down. That is good for the economy and companies like ours.
IIFL Holding Ltd has launched a Digital Transformation initiative for all its subsidiaries. Do you think this will help to achieve financial inclusion?
IIFL’s digital transformation journey is intended towards a) improving customer experience b) reaching out to smaller customers in a DIY (do it yourself) mode and C) providing a plethora of data and options that a customer needs, at a tap of a button. Clearly, this will definitely result in better financial inclusion. For example, our IIFL Markets app is being accessed from 1500+ cities across India. We have clearly experienced the interest in small locations to know more about financial markets. With increased availability of smart phones in block level towns and villages, and innovative apps like IIFL Markets we believe the common man will be able access the same knowledge as a businessman in Mumbai. Digital transformation will give immense impetus to the financial inclusion efforts.
You are one of the largest players in mobile trading in the country. What are the growth prospects of this segment in future?
IIFL is one of the biggest players as far as mobile trading goes. Trading through mobile has gone up over 4-8x in the past 1 year after we launched the new IIFL Markets app. Within a short duration of 1 year we have achieved 300,000+ downloads. IIFL Markets is a native app available on Android, IOS, Ipad as well as Windows. It’s the only app with live prices, streaming quotes, live TV, and where a user can see IIFL View on over 500 stocks. Anyone can download the IIFL Markets app and login as a Guest user.
In the past few months, equity markets have witnessed high volatility. What would be the impact of global developments like expectation of a U.S. Fed rate increase, on Indian markets?
We remain optimistic about the Indian equity markets over 12-24 months. If you compare the markets over the last Diwali, they have actually declined. Last year there was a lot of optimism because people believed the new government will come and suddenly the economy will be transformed. However, in reality, the economic growth will take some time to pick up. We believe the economy is slowly, but surely on the upswing and in the next six months we might be surprised by the growth numbers and hence we are positive on the market over a 1-2 year period. Globally, U.S. Fed hike has been more or less factored in. I think it will happen in the December quarter and if it happens it will be one of the many global events affecting the markets. Other events like geo-political crisis in Middle East, the terrorist attacks in Paris or the Chinese economic slowdown have cast the shadow on the markets in the short-term. In the long-term, India’s macro-economic parameters are comparably best in the world and given the size of the economy foreign investors can’t ignore a market like this. Slowly, we expect foreign flows to increase.
There is a general perception that the government is not doing enough for retail investors, also there is a need to consolidate on reforms, which should percolate to investors in the form of wealth creation. What are your views?
I think in the recent past the government has taken many favourable steps for the retail investor. One example is the cost cap in case of mutual funds, which is a major route of retail investment in equities. But the problem with retail investors is that in the last five years the markets have not gone anywhere and that is why retail investors are not coming into the market. My suggestion to retail investors is that one should not look at the short-term volatility but invest with long-term focus through systematic investment plans (SIPs) to get the best returns. Increase allocation toward equities because alternate assets like real estate and gold may not generate the kind of returns we have seen in the past. Equity is your best long-term investment option.
Retail Investors have stayed away from the primary market this year. Recent IPOs by IndiGo, Coffee Day have hardly seen any retail subscription. What will you advise them for the next year?
Retails investors have participated on and off in the primary markets. Some of the issues have done well and some of the issues have not done well. Some issues like IndiGo have done extremely well, which may attract retail investors. My advice to retail investors is that they should look at IPOs as an investment opportunity and look at fairly priced IPOs of good companies before investing. If the issue is overpriced, then it is better to avoid because for such issues you will get better opportunities in the secondary market to invest.
(oommen.a@thehindu.co.in)
