Tata AIA Life's chief investment officer Harshad Patil expects earnings growth to be in the high teens in a couple of years. In an interview to Shilpy Sinha , Patil said the benchmark index could post double-digit returns, tracking earnings growth, even as valuations normalise to longterm levels: Edited excerpts:
by, indiatimes
What are your earnings expectations for this year?
Over the last couple of years, there has been a significant re-rating of price-earnings multiples in India as the markets have rallied even though there has been very little support from earnings growth. The re-rating of price earnings multiples has been on account of expectations of a robust earnings recovery in 2018-19 and beyond. Going forward, we believe that the Indian equity markets would track earnings growth and expect the earnings growth to be in the high teens in the next couple of years. The benchmark index can still post double-digit returns as it tracks earnings growth, even as the valuations normalise to long-term levels.
Given that tax collections have gone up, what impact would it have on bond yields in the short and long term?
The recent improvement in directtax collection does help in cushioning the fiscal deficit and is a positive for the fixed income market. There remain some concerns on the GST collection front this fiscal as the GST revenues are expected to stabilise only over the next few months as compliance levels improve. The government has recently reduced its revised borrowing programme by ?30,000 crore as it has felt more comfortable on the revenue collection front, led by robust disinvestment proceeds. Bond yields have fallen from recent highs post these developments. Yields in the coming months will take cues from the government's fiscal consolidation path in 2018-19 to be announced in the upcoming Budget and the borrowing programme of the government.
With the recent capital infusion plan announced, will you look to invest in public-sector banks?
The government's announcement on the ?88,000 crore capital infusion into PSU banks through recapitalisation bonds is definitely a positive development, in line with the overall recapitalisation plan announced last year. That said, we still maintain our preference for private banks, as they would continue to gain market share over the medium term. We would like to see some announcements pertaining to consolidation in the PSU-bank space. We would also like to see the banking reforms announced by the government play out in the lending activities of the PSU banks and consequently improve the quality of underwriting. Moreover, a faster resolution of the cases referred to the NCLT would also help build investor confidence in this sector.
While
the third quarter results have acted as a positive catalyst for the
Indian equity markets, we believe that earnings growth over the next few
quarters would continue to act as positive triggers for the markets on
the local front. As regards global triggers, we believe that the
continued economic growth momentum on the global front will keep the
equity markets buoyant. That said, geo-political tensions do pose a
threat to the market momentum.
What are your expectation ..
What are your expectation ..
Talking to ET Now, Ramesh Iyer , VC & MD, M&M Financial , says net-net, their consumers are not intentional defaulters but do get impacted circumstantially and now with improved cash flows, there is improvement in overall collection.
Edited excerpts:
What led to this kind of strong PAT growth from you and over 40% jump in NII in the third quarter?
Clearly, the asset quality has registered an improvement. The provisions are much lower in spite of moving to 90 days and the reason for that is farm cash flows have been very good in the rural market and also at different state levels. We have witnessed infra cash flow in the hands of the consumer.
Net-net, our consumers are not intentional defaulters but do get impacted circumstantially and now with the improved cash flows, clearly there is improvement to the overall collection resulting in lower NPAs.
For us, as far as the net interest margin improvements are concerned, the income reversal of the NPA account gets done from the revenue and as the NPA comes down, the income reversal also stops and therefore the net interest margin improvement is very clearly visible. Overall to summarise, it would be the improved cash flow in the hands of the consumers which will result in better collections and therefore lower NPA, lower provisions.
Let us talk about asset quality because your NPL ratios have improved on a sequential basis significantly. What kind of recoveries and upgrades have you seen in third quarter?
Clearly in spite of moving to 90 days, we have seen a substantial collection from the accounts which moved into NPL and for us, the third and fourth quarter is always good quarter from a rural perspective with the farm cash flows starting to come in. There are better utilisation of vehicles from a tourist perspective, from wedding season, etc. We will want to see this improvement happening continuously as the market conditions improve and sentiments turn positive.
Can we see a further pick-up in NPA situation by Q4 this year and when do you see gross NPAs reverting back to single digits?
We are targeting for such an eventuality as we move along. We already have a 55% plus coverage and then the improved collections will result into lowering of NPAs. In fact, about 57% of our account which are in NPL have registered part payments during this period. If they were to pay off in the next quarter which we do expect, one would only see a better number from here.
NIMs at 8.3% are pretty stable. What are the key drivers of the NIMs?
We would stay here. The improvement to net interest margin can happen only if the lending rate were to go up or the borrowing cost had to come down. At this stage, as we speak, the chances of both this happening are not very visible and therefore I would very strongly think that our net interest margins should stay here and we are not putting out to kind of speak of any improvement over this beyond this but of course from the past account as we start recovering the NPL accounts, the benefit of the income reversal which have already been provided will also kick in to improve the net interest margins.
What is the outlook on net interest margin growth going forward, given the increased competition in CV financing plus revising bond yields?
The bond yield moving up will still be lower than our average cost of money. As we borrow fresh amounts, it will be to replace some of our current liability which would mature and they are already at a high price. Therefore, it is not going to impact us immediately. We are not a very significant player as far as CV is concerned. Only about 5-7% of our book is in CVs. While that is our growth engine, it is not something which is going to tilt our margin. Our larger books still come from auto sector products, tractors, car segments, pre-owned vehicle. We always look at an average yield and not any particular product but CV is competitive but we are not a significant player there.
AUMs have grown at 13% which is somewhat lower than what we were anticipating. Which are the segments that have seen slower than expected growth?
It is also to look at how many contracts mature during this period versus how many new contracts are underwritten. You will see the net AUM growth being a little lower but in the next quarter, if we do not have too many contracts maturing, but the business stays, then you will see the return of AUM growth to be a different number. But if you look at just this quarter disbursement growth, we have had a disbursement growth of about 17% and that is one way to look at it.
What is your expectations from the budget, given the increased focus on rural economy this time.
Housing is one segment in which we are also very excited as far as our future growth is concerned. We are very clearly looking at the affordable and the low-cost housing segment as our growth engine and we do expect that allocation around this will be high. We also expect that the allocation towards farm will be high. A lot of our customer segments are from the farming community and therefore that would be the other expectation and of course one expectation which has always been there for us is that when we make provisions for NPA, they should also qualify for tax reduction whereas in case of an
While
the third quarter results have acted as a positive catalyst for the
Indian equity markets, we believe that earnings growth over the next few
quarters would continue to act as positive triggers for the markets on
the local front. As regards global triggers, we believe that the
continued economic growth momentum on the global front will keep the
equity markets buoyant. That said, geo-political tensions do pose a
threat to the market momentum.
What are your expectation ..
What are your expectation ..
While
the third quarter results have acted as a positive catalyst for the
Indian equity markets, we believe that earnings growth over the next few
quarters would continue to act as positive triggers for the markets on
the local front. As regards global triggers, we believe that the
continued economic growth momentum on the global front will keep the
equity markets buoyant. That said, geo-political tensions do pose a
threat to the market momentum.
What are your expectation ..
What are your expectation ..
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