We are going to enter a phase where your actual earnings may take time to pick up but the markets are going to be in a very strong and firm footing, said Sunil Subramaniam, MD & CEO, Sundaram Mutual, in an interview with ETNOW.

Edited excerpts:

The narrative we are starting to pick up across the board is that perhaps we are underestimating the power of sentiment, the power of stability here.
I agree very much with that view because the price of the Sensex or the Nifty is not reflective of all those industrials, infra. If you look at broader market like an NSE 500, we will see that a lot of the gains happening there may not reflect in the top line indices. But the broad breadth will be very firm and strong.

When you are talking about the broad breadth, there are big concerns about earnings recovery as well. It may take a while to see that pickup coming in. But a lot of investors are starting to expect some kind of fabulous returns in a very short time.
The key element is that markets very often say that you are slave to earnings but very often, markets are the lead indicator to earnings. Markets are impatient. Markets do not want to wait for the reality. They want to predict the reality and bet on it. So I would say we are going to enter a phase where your actual earnings may take time to pick up but the markets are going to be in a very strong and firm footing saying this will ultimately happen and I do not want to be the last one on the board.

What would the Nifty upside be? So far, the consensus is we could see 12,000. That would be about 2% if we see a stable reformist government coming to power. Are you jumping on the bandwagon as well?
Yes, I am actually closer to the 5% because I think there is enough juice left. The day after the exit poll, it was more like a relief rally, a fear of missing out but this one would be a clear direction of future growth. I would say a lot more longer-term participants would commit money if this result comes today.

During NDA-1, we have not done better than US or any other major market. In fact, we have done exactly what other markets have done and so despite a very clear positioning of NDA-1 in terms of promise and in terms of commitment to take India to a future land or a promised land, the markets have just mapped S&P, that is it?
A part of the reason for that is that December 2017 was a breakpoint. The markets ran up from December 20114 to 2017. It was fabulous run and in 2017, there was a rerating of the world. There were crises happening that took away a bit of the returns and especially in the broader market sense. What I am saying is in the next 18-24 months, we will see that kind of rally and then if the thing follows through, in the second half of the tenure, a lot of the programmes which the Modi government started have not been followed through.

They have messed up the GST implementation, demonetisation was more hope than reality. Similarly, markets will give the government a cushion. A free run for the next 18-24 months to continue on those programmes and again in the second half of this tenure would be the report card and the reality check is all this happening or not.

You can brace yourself for a very good rally for the next 18-24 months and then what at the ground level job creation, all infrastructure creation, private sector capacity creation all of those things start on a good wicket then the rally can sustain. So I would say that that is the reason one.

Second is that at the beginning of the tenure, US was in a recovery mode. The reasons US market outperformed was because at that time, they were bullish on the US. In December 2017, again the US thing turned back. If the returns from the American market were a function of US growth being very strong.

Today, the situation is different, today you are going to see a situation where the American economy is not looking so great. That liquidity is going to come in and strengthen domestic flows. We are in a much better position to deliver better return in the NDA-2 than in NDA-1.

What would you buy? Are you fully invested but I am sure after the mandate since you are sounding bullish you will be forced to change your positioning right?

I will buy industrials in a big way because I think the big shift because what has happened is that the infra segment which got hyped up till December 2017, corrected big time. What I am buying today for three to five year return is industrials as a pack. Corporate banks also but over the last six-eight months, we have already been doing that. So some of the juice has given up in terms of valuation but on the broader industrial segment, there is a lot of juice. There are a lot of stocks under the radar which we are tracking and which we aggressively buying.

Even if you assume that the exit polls were 10% wrong, from 306 you are taking about taking 30 seats away and you are still at 270, assuming another 10% goes, you are still at 240. Arguably, with the 240, it would not be difficult for NDA to get another 30 people from the unaligned group. Today the markets may correct but within a week-10 days, as they realise it ultimately it is still going to be an NDA government, markets will bounce back and recover because that continuity of the programme and the policies will be there.

You are fully invested but you love to change your positioning?

So what will you sell? If you are going to change your positioning, you will have to sell something to buy something.
I will sell IT, I do not need to sell pharma because I never held it right through. I will sell IT because I had to buy IT because of the benchmark and today I feel that the global cues are also indicating that IT is not going to have a great year plus the US weakening means dollar weakening, which means rupee not weakening and oil seems to be in a stable zone. I would say that IT is something definitely I will go underweight now strongly from a neutralish stance.


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