Even as the economic reforms announced by Finance Minister Nirmala Sitharaman over the past few weeks are expected to boost the economy, there is a need to watch the impact of the trade war and negative interest rates closely, said Executive Director, IIFL Wealth and Asset Management, Anirudha Taparia. The improved sentiment is expected to provide a good opportunityo the investors to start building a long term equity portfolio, Anirudha Taparia also told Financial Express Online. Talking about the wealth industry, he said that the health of the wealth business hinges upon the growth of the wealthy in the country.
Here’s the excerpts of the interview:
How does the listing of IIFL Wealth fit in with your overall strategy that includes inorganic growth push?
The listing is a consequence of the demerger of IIFL Holdings and does not require us to raise primary capital or have an offer for sale of shares. Our robust balance sheet and conservative allocation of resources enables us to expand our market share. Organically, we groom the best talent and continue to attract senior relationship managers. Selectively, we continue to look at inorganic opportunities.
In addition, we are expanding our investment into our products, research and technology side of the platform to ensure our Clients are serviced in the best possible manner. The listing of any business facilitates fair price discovery as it allows for a different set of financial investors to participate in a company’s future growth.
Even though the business model of wealth management business is different from asset management companies such as HDFC, valuations appear to be slightly on the lower side for IIFL Wealth. What’s your take?
While I would not like to comment on valuations, it must be noted that Wealth management is a niche business that caters to a specific segment of the society. Comparing with Asset management companies may not be the right benchmark.
With the stock market conditions become volatile lately, what kind of bearing would they have on the growth of wealth management business in India?
It is in the very nature of stock markets to be volatile in the short-term and we recognise that while volatility can impact sentiment in the short term, true value emerges over the long-term. Additionally, in terms of growth, central to the business of wealth management is providing clients with holistic solutions that help them grow, as well as, preserve their wealth. This entails understanding a client’s needs and then creating customised solutions designed to fulfil those needs. Thus, it follows that the health of the business hinges upon the growth of wealthy in the country.
India is home to 284,100 wealthy individuals with a combined fortune of INR95trn, according to the IIFL Wealth Index. By 2021, that figure is expected to reach INR188trn. The market place is expanding, with the number of wealthy Indians expected to rise by an astonishing 87% over the next five years. This means that as the number of wealthy and their wealth grows, so will the wealth management business. Having said that, firms cannot be complacent about the future. Wealth management is, and has always been, a business of trust and strong relationships. Only firms that invest in these relationships and deploy innovative solutions will benefit from this growth in wealth.
How was your business affected after the announcement of an enhanced surcharge on super-rich in the latest budget?
Our primary focus as a wealth management firm is to constantly advise our clients and help them navigate the changing investment landscape. The budget is behind us now. There are multiple tailwinds including GDP growth, financialization of savings, investor education and growth in Tier II and III cities which are in play. Landmark reforms have been announced by the finance minister last week which is overall very positive. Yet as wealth managers, we will maintain continued degree of caution around global events, especially the impact of trade wars and negative interest rates around the world.
What do you make out of the recent announcements made by Finance Minister Nirmala Sitharaman to boost the slowing economy? Will stock markets also take a cue?
In a major boost to the economy and with an intent of stoking economic growth, the finance minister announced a set of amendments to the taxation laws in the country which included a cut in the corporate tax rates from 30% to 22%. We believe that with these measures the government has shown its intent to revive the economy and has taken steps in the right direction.
Our initial estimates show that earnings of NIFTY 50 companies are likely to increase by 6-7% as a result of the tax rate cut. The cut has also significantly improved the sentiments in the market. Benchmark indices have skyrocketed post the announcements. We believe that the improved sentiment and imminent earnings benefit to corporates provides a good opportunity for investors to start building their long term equity portfolio.