There's no fear that we are slipping into a bearish stock market: Sunil Subramaniam

Sunil Subramaniam, MD & CEO, Sundaram Mutual, says from an economic news perspective, I do not see any surprises. We are in a festival season and this time we have a slightly elongated festival season with Diwali coming in around mid-November. That is good news from the consumer section, consumer durables and auto and housing sectors and that is good news for the markets. At the same time, the state assembly elections in key Hindi belt states will provide a little bit of a clue in terms of the next coming parliamentary election. While they will not have a significant impact because voters behave differently in parliament, the markets will be a bit sensitive if those elections do not go the way of the ruling party at the Centre.


What is your view on the market? Right now we were cruising around that 20,000 mark headed for higher levels and then suddenly back to 19,500?
Yes, it is just a reflection of stuff happening outside India in terms of oil prices strengthening as well as the US Fed being hawkish in terms of the interest rate outlook and their actions. These two tended to be a bit negative for emerging market flows and India especially is very sensitive to oil. We import 85% of our crude and hence any movement trend around oil makes a big impact.

So, September onwards, Saudi Arabia and Russia are announcing production cuts. We have the winter coming over in the advanced economies, that is Europe and the US, which means there will be greater energy demand for heating. Generally a firmer energy situation is not so very positive for India and so some amount of short-term tactical hedge fund allocations have probably started moving out and as we approach December, typically the hedge fund profit booking thought process starts because they try to pay bonuses from cash profits.

These are the things which are leading to a little bit of uncertainty and hence the markets could not capture the gains above 20k and have tended to pause because what has countered this is two things here: One, Indian economic news continues to be good, the only concern on the horizon which will get clarified over the next few days would be how did the September monsoon behave because till August, we were below long-term average in terms of monsoon.

So, if in September there was a reversal in good news, then again that supports it; if it was not, then a little bit around the RBI policy which is due in October first week will create a little bit of tension.

The other thing is that from an economic news perspective, I do not see any surprises. We are in a festival season and this time we have a slightly elongated festival season with Diwali coming in around mid-November. So, to that extent, it is good news from the consumer section, consumer durables and auto and housing sectors. That is good news for the markets.

At the same time, politically one has to keep in mind that the state assembly elections in key Hindi belt states provide a little bit of a clue in terms of the next coming parliamentary election. While I do not believe that they will have a significant impact because voters behave differently in parliament, the markets will be a bit sensitive if those elections do not go the way of the ruling party at the Centre. So, lots of stuff can cause a bit of uncertainty.

Markets will be range-bound because for all of the so-called negative news from overseas, we have the strong SIP book and domestic flows coming in and helping mutual funds and insurance managers to buy on these dips. While the markets will be reacting to these flows, there will be a bottom line support coming in from domestic flows. I would say just be prepared for volatility, but there’s no concern that we are slipping into a bearish stock market phase.

Running such a large fund, you must be keeping a very close eye. What are your strategic team members who track macros very closely telling you? Are they giving any instances of what happens to EM equities because the last time US yield was this high was 15 years back. Anything you can share with us or is it okay to be cautious for a few months?
It is not the absolute levels of the interest rate which are so much a concern as the trend lines. The markets are always forward-looking, they always discount the past and the present. What is there in the news is in the price. What is unknown is what it is and the market was predicting a rate cut pretty soon next year. But today the Fed’s talk has pushed that.

So, it is a trend from the current level. It is not the absolute level. The point is that the market has already discounted the current 4-5% interest rates in the US. Are you going to see that come down because that would have happened if there was a hard landing. What the market now is thinking is there could be a soft landing, a low landing because despite the rate hikes the news around broadly the US economy is fairly good except for the fact that inflation is not coming down to the comfort zone of the Fed.

So, there is no likelihood of a rate pause, rate cut in the near future because it is all now at 25. That is what has changed and the reason for caution comes from the fact that the market is always willing to take short-term spikes into their fold and go forward. But for whole of 2024, if you are seeing a high interest rate scenario, that is where the fund managers are looking at and saying hedge fund money is essentially leveraging of borrowed money. So, the margin of safety will come down and to that extent, emerging market flows could be under pressure and which is what we have been seeing for quite a few months.

India was the last man standing, most emerging markets had been getting outflows from three-four months back, India held down till end August and it was only in September that we got a little bit of a shock in terms of outflows.