Clipped from: https://economictimes.indiatimes.com/markets/expert-view/baton-being-handed-over-from-safety-to-risk-in-market-sunil-subramaniam/articleshow/80251644.cmsSECTIONSBaton being handed over from safety to risk in market: Sunil SubramaniamLast Updated: Jan 13, 2021, 05:30 PM ISTSynopsis
‘The services sector will bounce back very sharply because they are the ones which got hurt in the lockdown.’
Other than IT and pharma, high-end consumer stocks both consumer durables and discretionaries will do well, says Sunil Subramaniam, MD & CEO, Sundaram Mutual.
The only folks who are complaining in this market are those who are not participating. What is your view?
Absolutely and that has been the words of some of the investors who have redeemed in this period. Domestic investors have been redeeming from mutual funds quite a lot. I am sure they will come back seeing what they have missed out.
As markets go higher, those who are invested in the market are not complaining. But there is a large section which believes that the situation is too hot to handle and the train is about to reach the last station.
It is always the case when any bull rally takes place. There will always be people who will say that this is not justified. Market is the lead indicator of the future and the people who are the naysayers or the doubters always tend to look at the very near future to say that the market move is not justified.
But market participants who are driving it up — FIIs in this case — have brought in Rs 200,000 crore since April last year. They are not short-term players. There are hedge funds which take bets from three months to a year but there are pension funds and sovereign wealth funds which are looking at a much longer timeframe, in some cases, even a 10-year plus or a 20-year plus timeframe. When that participant is buying with that outlook, one has to see what they are betting on and when you can back that horse. It is likely that you will come out the winner.
But if you are trying to look at the next three months and six months saying this has gone too far, then you are applying your spectacles to another market participant and hence you will be left behind. They are buying the fact that India had the most severe lockdown, corrected the most because of that lockdown because medically that worked wonders and our pharma industry has come up on the vaccine front. The India story had the sharpest V-shaped recovery in the world, that is number one.
Number two, going forward, you can at least see a day in the future which is not dominated by corona. When you are looking at it from that perspective and look at the relative strength of nations, India’s strength is coming from its labour and the fact that in manufacturing we have not really caught the bus yet as a nation. But the Modi government has been carrying out reforms and when that picks up, you cannot catch the Indian economy’s growth.
There is going to be a perspective beyond corona and that is what certain segments of FII participants are looking at and have started to buy them. If you are going to buy what went up last, then naturally you can feel disappointed because I see the baton being handed over from safety to risk, from a narrow to a broad market. That is what has taken the Nifty up in the latest rally and that is what is taking up the broader market. The economic data on the ground are supporting this. Inflation data has come out better than expected.
The services sector will bounce back very sharply because they are the ones which got hurt in the lockdown. There is going to be a much more broad-based earnings report which will beat the analysts estimate for this quarter. You have to keep your eyes both on what is happening on the ground and on what the market participants who are buying with the big bucks are seeing. If you align yourself there, you will see that the times ahead are good for the Indian stock market on a broader market basis.
The market anticipated what none of us saw in May, June or July in terms of the shape of the economic recovery and started rallying. The economy is bouncing back in 2021 and 2022. Since the markets had already moved up in anticipation, why should it keep going higher?
Nifty 50 is just a representative of the overall market and the Nifty50 and the Sensex are touching all-time highs because of a certain set of stocks from certain sectors which were safety plays in the downturn. What went up in the first set of the rally were pharma and healthcare and IT stocks. These represented safety to foreigners.
What gives confidence in the future is that the baton has been handed over to risk and to a broader play. The market rally was very narrow and concentrated. The breadth of the rally is broadening. But not many of these stocks and sectors are trading at their lifetime highs. There is the scope for the market to go out further. The market is always smarter than an individual participant because of the collective wisdom and in that collective wisdom, you will see now that they are shifting to what is going to happen to the economy. So the components of the rally will change but the underlying strength of the liquidity flow will remain.
You are saying participation of broader markets will increase but where does that confidence come from?
I agree with you that the market is not yet as broad as it should be. I was talking about the direction for the future. As the earnings growth and the economic data comes out, the market will move broader. I am fully with you, I am not saying that it has happened but it is beginning to happen and the precise reason for that is though markets are forward looking, economic data are not. The prediction of economic data is a very hard task. Why I point this out is that when the economic data or earnings data comes out, the data in front of the market is always year-on-year and so for 2021, the biggest story is going to be the growth over the same period last year.
For example, last year’s April, May, June was the 23% negative GDP growth quarter. It was the time when the earnings got hammered. Nobody is going to predict GDP numbers in that quarter on a year-on-year basis are going to show a phenomenal jump and hence the market will get new highs. Marrying the fact that the market is forward looking and that the data is always representative of a backward looking mindset, gives the market a chance to touch new highs.
What about the year-on-year comparison in pockets like hospitality and travel? There may not be much respite when it comes to some of these pockets?
I agree. When I say broad-based, I mean there are going to be some of these high-end consumer stocks both consumer durables and discretionaries. Auto and housing had a very terrible last April-May-June quarter. Summer happens to be the time when demand for refrigerators and air conditioners peak and last year was a washout. We are going to see phenomenal numbers and so the year-on-year growth. It will not be uniform but certain sectors like autos including commercial vehicles are going to look very good in comparison.
I agree certain sectors will continue to show pain and you have got to be careful in your sector and stock picks when you do this.
What is your outlook on pockets like specialty chemicals, fertilisers, agri?
Specialty chemicals has a good potential for two reasons; the China plus one strategy can play out in its favour. Two, the PLI scheme of the government will also choose this sector as one of the key sectors where they give incentives and I see a good future for that.
The agri is more of a rural rather than a pure agri play because we have had a good monsoon last year and one has to wait another month or two at least to get the initial forecast of the monsoon this year. But that being said, two good harvests have put enough money in the hands of the rural consumers.
Tractors are showing phenomenal demand. The sowing season for the next rabi crop has also been very good. As a short-term play, agri looks very good. It is probably going to hold up the GDP numbers for this quarter. The January-February-March numbers are going to be supported by a good agri bounceback.
Fertiliser is a highly regulated sector subsidised by the government and it is also monsoon dependent. The whole agri commodities segment will involve a little bit of wait and watch. We are subject to the weather gods behaviour and that is a more near term call.