Daily Voice | The reason this fund manager believes that banks and NBFCs are generating more profits

 Daily Voice | The reason this fund manager believes that banks and NBFCs are generating more profits

The banking industry has maintained stable asset quality and strong loan growth.

The general elections are approaching, and the holiday season has begun. In light of this, Right Horizons' founder and fund manager, Anil Rego, anticipates that banks and NBFCs will continue to contribute to incremental profits.

The certified financial analyst, who has over thirty years of expertise in the equities markets, is optimistic about the capital goods market in the medium to long term because to the continuing capex cycle and strong order inflows.

The management is optimistic about the profits rise in H2FY24, and demand has been strong. Thus, he anticipates that the industry will boost profits. Taken from an interview conducted by Moneycontrol:

Which would you rather have—banks or NBFCs?

Although our study indicates that quality brands with strong financial sheets usually benefit in the early stages of an increasing capex cycle because to NBFCs' short turnaround time, we remain bullish about both groups.

Banks typically profit in the latter phases, but because we were in an environment with increasing interest rates, banks have also been reporting strong profits and have been the main source of additional earnings since FY23.

Given that we are approaching the holiday season and the 2024 election season, we anticipate that banks and NBFCs will both continue to contribute to future profit growth. Even though growth momentum is anticipated to continue, we anticipate that as finance costs increase, margins will contract for both.

Do you anticipate the credit cycle to normalize in FY25?

The retail and SME sectors are still growing, which is fueling the banking industry's strong momentum for loan expansion. Bank management has also expressed optimism on the growing trend.

The capital buffers of the banking industry have strengthened, and the quality of its assets has not diminished. We think that the strong trend in the credit cycle would probably continue in FY25 due to the demand for capital expenditures by corporations and governments.

Do you believe the capital goods industry has already factored in the majority of the benefits, or are strong returns yet to come?

Because of the continuous cycle of capital expenditures and robust order inflows, we have a medium- to long-term favorable structural outlook for the industry. We anticipate the sector to contribute to profits growth since demand has been strong and management is optimistic about the earnings increase in H2FY24.

Do you believe that the market will be more volatile after the elections?

Because investors are waiting to see how the elections turn out, there might be volatility. Market players are often reassured by a stable government, which prompts favorable market responses. On the other hand, volatility may rise in the event of uncertainty.

The largecap index Nifty has historically increased in the lead-up to a general election throughout the last five elections. In the six months leading up to the elections, the index increased, returning an average of almost fifteen percent.

This week marks the end of the corporate results season. Have you seen anything unexpected? What do you think about the profits as well? Have you updated your predictions for 2HFY24?

In general, Q2 earnings have been consistent with the ongoing outperformance of domestic cyclicals. Auto and BFSI continue to be important drivers of profit growth. Because of the unfavorable macroenvironment, IT services reported a poor performance in FY24 and reduced revenue projection.

Both solid asset quality and strong loan growth persisted in the banking industry. Thanks in large part to reduced material prices, an improved product mix, and operational leverage, the car industry surprised on the profits front.

Do you anticipate that the current holiday season will be particularly robust during Q3FY24, the corporate earnings season?

Consumer spending is expected to expand rapidly in Q3FY24, and profitability will likely be skewed as a result of the delayed holiday season. BFSI, auto and auto-ancillaries, and industrial capital goods should all maintain their current pace.