In Conversation With, Sunil Subramaniam Managing Director and CEO, Sundaram Mutual

In Conversation With, Sunil Subramaniam Managing Director and CEO, Sundaram Mutual

Excerpts from an interview with Sundaram Mutual Fund

Sunil Subramaniam
Managing Director and CEO, Sundaram Mutual

“Investors Should Look At Allocation From A Goal-Oriented Perspective”

Now that we are at an all-time high, what is your outlook on both the global markets and the Indian equity markets?

I think the recession is inching closer because of which I think the interest rate hikes may have been begun to achieve their purpose. That is why the market is rallying because the participants don’t expect a peak to be followed by another 50-75 basis hike. The expectation is for a pause and rate cuts to boost growth by the end of the year. In the global markets, there are two factors in play. One is that the liquidity tap is unlikely to get closed during a recessionary phase. The markets always discount the future. The forthcoming data in the next few weeks will reveal whether it is going to be a hard or soft recession. In case of the latter, there will be a bounce-back effect.

A hard recession may last for at least 4-6 quarters, which means the revival phase will begin by the end of 2024. I believe all this bad news is factored into the markets. The global markets have also probably seen a bottom unless there is a sectoral level surprise. That is why the US’ earnings are important. The US follows a calendar and the companies will start reporting their earnings in January. From an Indian perspective, the recession may lead to a crack in the oil prices and will depend on the the ability of OPEC to cut supply to keep the prices from falling.

And typically, I don’t expect this to get resolved before February or March. Due to the need for heating during winter in the western countries, the demand for oil will increase.

And that is why the US has announced a price cap since it is trying to economically win the war against Russia. However, this may not hurt Russia since it is already selling at a discount. Another important point is that Europe seems to be still divided in terms of whether to follow the price cap or not. This has led to uncertainty. In India, the focus will now shift to the Union Budget. As such, the markets will lack any clear direction. I do not expect any liquidity drop. Also, the correction will not be deep. The domestic inflows are good and the SIPs continue to be fairly robust. Therefore, this could be a consolidation phase. A good budget will lead to all-time highs and if it is a populist budget due to elections next year, the markets may take a pause.
 

How can one invest when the market is at record highs and how best to take advantage of mutual funds?

While it is assumed that the market is at its all-time high and so the earnings are also at a high, the PE ratio is not at an all-time high. It is still around the long-term average of the country, which is 18-19 per cent. If the markets are at an all-time high,the PE should have been at about 25 per cent and at that stage discounting should be expected in terms of future growth in profits. Today, the market is only factoring in normal growth and profits. The valuations are still hovering around the average. What you should focus on is that from an investor’s perspective you don’t really get a sense of the valuations.
 

Investors should look at allocation from a goal-oriented perspective. The further you are away from your goal in time or value terms, the more you should put into equity. If you are closer to your goals, the asset allocation must shift towards debt. Also, importance should be given to risk profile. Today, the domestic story is that of middle-caps but flexi-caps must be an investor’s primary allocation in equities. With FII money coming and supporting Large-Caps, investors could pay attention to large-caps too but only if they are ready to face volatility.
 

For those investors looking for decent growth, I would recommend the hybrid category of dynamic asset allocation, which is balanced advantage funds, equity savings funds, etc. For the slightly conservative investors, short-term liquid funds and ultra-short term funds are the place to be in a rising interest rate scenario. My bias is also towards the equity savings fund which, however, carries only 30-50 per cent equity. It is more of arbitrage and debt. Over the past 5-10 years, equity savings funds have delivered high single-digit returns and if you combine that with equity taxation it actually gives you a better return than a Debt Fund.
 

What exactly is long term? How much is long term in your view? Is it one year or three years?


Short-term, from an equity market perspective, is 1-3 years, medium-term is 3-5 years and long-term is 5-10 years and more. The logic behind is simple; it is the extent to which the capital market can assure you capital protection. If you say five years and you take the large-cap indices, for about 98 per cent of the time they would have provided capital protection.
 

In your view, will the Indian markets continue to outperform global markets?


The simple answer is yes, the Indian markets will continue to outperform the global markets because the Indian economy is largely decoupled from the world economy. The reason is that our export share is only 1.9 per cent. So, in case of a recession in world economy, exports of emerging countries will get impacted but the effect on Indian markets will be minimal. Secondly, the Indian government has used expansionary fiscal deficit very well in capital expenditure and given the economy sustaining growth, which is not dependent on international sources. With problems faced by China and the Indian government’s beneficial measures such as the PLI scheme, Indian economy is turning recession-proof. Equally important is the fact that FIIs invest in India because we import 83 per cent of our oil during a recession when oil prices crash.

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