Speaking to ET Now on the sidelines of an event, Nirmal Jain, Founder, IIFL Group shared his assessment of what is shaping the startup and broader financial ecosystem — from AI disruption to rural demand and gold loan trends.
Overwhelming Response, AI at the Centre
“There are two things that stand out – one, that the response has been overwhelming. So, earlier maybe there had been concerns that foreign investors were selling and probably they were not so much interested in India, but the participation has been very-very overwhelming. And two, the interest about AI, and we had some very outstanding speakers and experts in AI, and that has generated interest from all investors, local as well as foreign investors. So, these are two themes which at least I could notice clearly coming out in this theme.”Jain said perceptions that India is lagging in artificial intelligence are being challenged. According to him, while much of the global noise centres around the US and China, serious work is happening on the ground in India as well.
“At times, maybe some perceptions have been there that India is being left behind, but people are discovering that a lot of work in AI is happening in India. In fact, India is at the cutting edge. Maybe a lot of noise is made by the US or sometimes by China also, and the rest of the world may not know about the serious work that is happening at the ground level in AI.”
However, he acknowledged concerns about employment, especially in the IT sector, which accounts for $350–400 billion in exports.
“The flip side of it is that there are a lot of concerns about what will happen to jobs and in particular India, where the IT industry is 350-400 billion of exports and that is where the jobs are being threatened. And there are mixed views. People are still trying to understand and grasp how quickly these companies will pivot and adapt to AI-assisted software development.”
He described the current phase as one where the jury is still out on whether job losses will be devastating or offset by innovation and new roles. “It is very-very exciting times in terms of discussions in and around AI,” he added.
IT: Survivors, Winners — But Not Equally
On whether Indian IT companies can leverage the AI opportunity, Jain struck a broadly optimistic note — albeit with a caveat.
“By and large, they will adapt and they will emerge as not only survivors but maybe winners. But as has always been the case, not everybody will be a winner or a winner to the same extent. So, the pecking order will change.”
He suggested that the next five years could bring significant churn within the sector. “Some of them will emerge stronger if they can also innovate and do something that is really outstanding. So maybe, in the next five years, we will see major upheavals, there will be new stars and the earlier stars might probably not remain so.”
Calling it an exciting phase, he added, “My gut feel is that by and large our companies and our entrepreneurs are very smart and very grounded. They will innovate, but the space is such that the success will be very disproportionate. Some will be exceptionally successful and some may not be as lucky.”
Earnings Cycle: Sweet Spot, But Lower ‘New Normal’
On corporate earnings, Jain believes India is currently in a relatively favourable macro position.
“I think so because India that way has been in the sweet spot. Our inflation has been in control and so, in real terms the growth has been good.”
He pointed to progress on trade deals and improving macro conditions as tailwinds. “The EU trade deal that had not happened for the last three decades has happened. The US trade deal has happened. With most of the countries, we have been able to strike a good balance in terms of how we are going to import and export. The macroeconomy has started doing better. With inflation under control, the economy will do well.”
That said, he cautioned that nominal growth trends may temper long-term earnings expectations.
“One major thing that one has to keep in mind is that the nominal growth in the economy or the M3, which was say 14-15% historically, has now come down to maybe 9% to 11% over the medium term. That will have an impact on the entire GDP growth, which is the national income growth in nominal terms and therefore, longer term the new normal of earning growth will probably be lower than what it has been in terms of expectations of analysts and investors historically.”
Rural: Gradual Reversal, Not an Explosion
With a large semi-urban and rural presence, Jain was also asked about on-ground trends.
“We are seeing a gradual reversal and absolute uptick in the sentiment. Maybe last year’s GST cuts and the interest rate cuts — these two things have revived the demand and also the government’s DBT and the transfer of money — those things have now started showing impact.”
He noted that election-related volatility had earlier affected rural markets, but the past three to four months have shown improvement.
“I would not say that it is an absolute turnaround or explosive growth, but it is a gradual reversal for sure, and that is in credit demand and that is in collection efficiency both.”
Gold Loans: Healthier Shift from Unsecured Lending
On the shift of MSME and MFI borrowers towards gold financing, Jain termed the trend healthy.
“Our tonnage has been growing. I really do not know about the industry because there are two factors. One is there are new borrowers and so new gold is brought in. But the existing borrowers probably will need to pledge much lesser gold.”
He explained that borrowers typically pledge only as much jewellery as required for their loan amount. If loan-to-value improves, pledged quantities may decline even if demand remains steady.
Importantly, he sees the move away from high-cost unsecured loans as positive.
“This trend of MFI or unsecured borrowers moving towards gold is healthy and not unhealthy for two reasons. One is the borrower is more serious about the repayment and making sure that the money is utilised for productive purposes and two, the cost also goes down.”
Contrasting it with past practices, he added, “The unsecured lending was happening at exorbitant rates, sometimes 24 to 36%. Many new fintech players had come in, many new NBFCs, there were young and small NBFCs funded by small private equity, they were charging exorbitant rates of interest, which is not a healthy practice.”
While gold loans carry operational costs — given small-ticket sizes and security requirements — he maintained they are still more affordable for borrowers in the segment.