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    Largecap, midcap & smallcap are all going to run up: Sunil Subramaniam

    Synopsis

    Since December 2017, politics had dominated the agenda but now, the economy is back.

    Sunil Subramaniam-Sundaram MF-1200
    Expect smart across-the-board rally but some segments would get a boost. Also multicap portfolio is the order of the day, says Sunil Subramaniam, MD & CEO, Sundaram Mutual. Excerpts from an interview with ETNOW.

    Is Friday’s announcement going to fix the short-term sentiment? Maybe a 200 points rise on Monday morning, a follow up on Tuesday and that’s about it?
    No, this is a more fundamental change because two things are there in the message; first, the economy is back on the agenda. Since December 2017, politics had dominated the agenda with the upcoming election and with doing away with the Article 370. Today, the economy is back on the agenda.

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    Second, has the government signalled two more steps they will announce so that responsiveness is back on the agenda? Even in future, if any problem crops up, the message clearly is that the government will respond to it.

    Third, the acceptance that wealth creators are not bad guys and wealth creation is welcome. These are very fundamental changes in the thought process and it is not going to be a short term rally or bounce that could be a correction. It is fundamentally about the responsiveness of the government and that growth, economy and capital markets are back on focus,

    The finance minister made the auto industry related announcements. There was a lot of consultation for clarity and then they came up with an answer. The market will read into that. The market had gone into risk aversion and now the risk will be back on the table. On top of it, FPIs would have been taken by surprise because they were knocking on deaf ears earlier as there was no signal that the government is going to respond. Now that they have responded, FPIs flows will also restitute itself. Across the range, largecap, midcap, smallcap all are going to run up so multicap portfolio is the order of the day.

    How could markets move from here? Do you think interest will reurn to NBFCs, banks, maybe the CVs and auto companies because each sector has got something from the FM?,
    There will be a broad-based, across-the-board rally to some extent but one will need to choose. Earlier, the government had intended Rs 70,000 crore to recapitalise weak banks but now they are likely to reallocate that to growth capital needing banks. So, weak banks might not get that capital and they will remain weak.

    Second, among NBFCs, only good ones are going to be able to get money. So, again the weaker NBFCs would not and there will be a small across-the-board rally but very soon there will be a discerning of which NBFCs would be the beneficiary of this and that demarcation will start happening.

    For example, if you take the depreciation benefits, the segment which will benefit is that which is going to sell to businesses. A lot of analysis is needed whereby you can find out which is going to be the maximum beneficiary and it will probably take the market a couple of days’ number crunching to figure out the scenario. I think there will be a smart across-the-board rally but definitely you would see the specific segments which are going to get a boost.

    Do you see a scope for a turn in sentiment for mid and smallcap stocks which have got bombed out completely?
    Yes. The message for the midcap and smallcap stocks has been the revival of the economy. These capital market related thing may not help the mid and small companies but what will help is the government’s message that we care about the economy and economic growth and hence mid and smallcaps which are highly leveraged and which are subject to sentimental moves, will see a sharp upswing now. The derating factor of growth gets eased up. The government’s actual promise is to come and support any sector which is going through a slowdown. The cyclical element will suddenly get knocked out from the valuations of the mid and smallcaps, saying there is secular growth ahead.

    For anything which is weak, there is a promise of government support and the market really needs that. I would say there will be a rerating in the mid and small caps across the board because the economy is in a slight downcycle and that will get discounted very quickly. The market will say that this is going to get smoothened out and you can see a secular growth coming in to even these mid and smallcap companies.

    This will help the valuations and as we know they are at 20-25% discount to the largecaps and I see that gap getting covered up. Earlier,we had discussed how from 2005 calendar year to datem in no single calendar year either the Nifty index, the midcap index or the small cap index has returned two consecutive negative years and in 2018, both smallcap index and midcap index were negative and they say in another four months, these indices can turn positive. It seems that somebody has told that to Nirmala Madam and she has made sure that by the end of this calendar year, mid and smallcap indices will be back in the positive and the green.

    Is what has been announced for FPIs and domestic investors good enough to revive or give a little fillip to sentiment or is that good enough to maybe have India once again as a darling of all emerging markets?
    There are two things there; in the land of the blind, the one eyed man is king. So in an era where there is no growth at all, this taxation was the one of the elements which was holding us back and the currency impact came because FIIs were pulling out money. The moment they see that India’s growth rate is now supportive and the taxation element has gone away, the sheer flow of FPI money will cause the currency to strengthen and enhance FPIs’ return.

    This year, already India has got double the money of any other emerging markets except for China. And this is after the withdrawals from the post budget period. If you take away, it was actually $11 billion that is 3x.

    If you look at the forward valuations today for the calendar year 2020 India, global valuations is slightly at a premium to emerging markets. To that extent, India has been a very attractive market and given the outlook on oil prices thanks to Mr Trump pumping the shale gas pumps, we will see the currency pressure on the rupee from an oil perspective easing. I think there is going to be a huge flow of money into India in the context of the withdrawal of FPI surcharge.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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