Daily Voice | Raghvendra Nath from Ladderup discusses the attractiveness of the microfinance sector for sustainable investors

Raghvendra Nath, Managing Director at Ladderup Wealth Management, expects the microfinance sector to continue to grow at a healthy pace and, given our country’s size and demographics, provides an ideal location for future-ready investors.

Over the years, the microfinance industry has grown significantly, with several major players leading the way.

Raghvendra Nath has over 29 years of corporate experience and extensive knowledge of financial markets

Given the current inflation and growth scenarios, he does not expect the IT sector to grow more strongly in the second half of the year as it appears unlikely that the European Central Bank or the US Federal Reserve will change their stance in the near future.

Q: Do you see any threat to the inflation numbers being within RBI’s range of 4 per cent (+/- 2 per cent)?

In the recent past, food inflation and the steady rise in oil prices have been the main reasons for high and persistent inflation. For example, a few months ago we saw prices of vegetables like tomatoes go through the roof, in addition to oil prices trading at $75 per barrel and reaching a worrying $95 per barrel.

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Looking ahead, the weak monsoon in July and August, coupled with slower exports due to the global economic slowdown and higher import bills due to the rise in oil prices, are fueling fears of an even further rise in inflation.

However, food prices have currently fallen significantly and the monsoon season has ended normally in India. We also see that oil prices appear to have stabilized for now. Furthermore, given the numerous interest rate hikes that have taken place in the last few months, liquidity in the banking system also appears to be under the control of the RBI. In this scenario, we do not assume that inflation poses a very high risk to the economy.

Q: What do you think of the IT majors’ September quarter numbers announced this week? Does the commentary suggest a better second half than the first half of FY24 for the IT sector?

For the September quarter, IT group management teams have provided a more conservative revenue forecast and a less optimistic near-term outlook, reflecting factors such as project cuts, revenue losses and cautious customers.

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Infosys has revised its FY24 revenue forecast to a range of 1-2.5 per cent, compared to the forecast of 1-3.5 per cent in the previous quarter. HCL Technologies has also cut its revenue growth estimate for FY24 from 6-7 per cent to 4-5 per cent, indicating the real business case of these companies.

Based on the quarterly results and future forecast, we can conclude that IT services revenues remain somehow subdued despite continued stronger growth in the US economy. Although the economy remains on a strong growth trajectory, there is widespread belief that higher interest rates will ultimately impact profitability and consumer demand in the coming quarters.

Given the current inflation and growth scenarios, it is unlikely that the European Central Bank or the US Federal Reserve will change their stance in the foreseeable future and accordingly we do not expect a better second half of the year for the IT sector.

Q: Do you think the microfinance sector is in a good place?

Given that the microfinance sector has now been around for more than two decades, the growing segment has achieved a degree of stability, with technological developments contributing to better credit ratings and collections.

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Over the years, the industry has grown significantly, with several major players leading the way. Given the size of our country and demographic trends, we expect the sector to continue to grow at a healthy pace and provide an ideal location for future-ready investors.

Q: Do you see stable growth for non-banking financial companies in the coming quarters?

The non-banking financial sector is extremely widespread, with different NBFCs serving different verticals such as institutional lending, vehicle financing and retail banking. Therefore, we cannot provide an outlook for the industry as a whole.

However, the revival of the investment cycle, an increase in consumer demand, a strong increase in demand for passenger vehicles and the overall growth in retail loans all seem to point to an overall positive outlook for the sector. We believe that high quality NBFCs will continue to capture these markets and grow strongly in the coming quarters.

Q: What immediate risks could there be to the stock market?

Currently, equity markets are near their all-time highs and so the big question now is about the direction in which they will move, even if we assess the risk of a major correction. On the corporate side, the situation remains stable and we do not expect any major shocks to the financial performance of various sectors.

Likewise, the central bank has made its policy very clear, so we do not expect a more restrictive stance in the future. Accordingly, the development of oil prices could pose immediate risks to the stock market due to our dependence on imports and the resulting impact on inflation. Furthermore, the geopolitical scenario remains a concern as Ukraine and now Israel are in turmoil.

Going forward, we are keeping an eye on how developed economies, particularly the US, perform in terms of economic growth and inflation, while also assessing how the domestic political landscape will evolve in the coming months.

Q: The majority of Fed officials support another rate hike and need more data indicating easing inflation pressures. Do you think there would be a long pause after another rate hike?

The US Federal Reserve’s key interest rate is currently 5.25 to 5.50 percent and there is the possibility of a further interest rate increase in the next two months. Such a move would suggest that the Fed has no intention of changing its monetary policy stance any time soon.

After having a strong influence on inflation control over the past year and a half, the Fed is not expected to make a U-turn in the near future. Unless inflation cools significantly and economic growth remains subdued for a longer period, we therefore expect a long pause of 18 months.

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