Geo-political easing, global truce to trigger market optimism: Sunil Subramaniam
"A culmination of the two things meant that this remaining uncertainty and it is not just the
Indo-Pak ceasefire
, it is also the US-China talks in terms of putting a pause on the tariffs for 90 days to a limited extent and also the Russia and Ukraine are now willing to talk to each other," says
Sunil Subramaniam
,
Market Expert
.
I just wanted to have your thoughts on the market movement. At least for today, what a cheer it has been, what a respite, and what a beautiful move in the benchmark indices and even the broader markets. What do you make of this move?
Sunil Subramaniam:
So, I see this as a culmination of two things. One is there is a buildup of good news for India over last two to three months starting with oil price reductions, the budgetary giveaway to the middle class, the easing inflation, the 12% rise in the YoY GST collection, the good monsoon, all of these good factors which came out could not be fully implemented.
Now FIIs caught on to it and were buying into India, by and large for the last 15-20 days, but DIIs were hesitant because the earning season was on and they were not confident because obviously the Indo-Pak situation was also a concern to the DIIs, but even overall international situation was a concern, earning season was a concern, so DIIs money was a little bit on the sidelines about two, two-and-a-half lakh crores just with the mutual funds was in the cash balance, on top of it there would have been insurance and Aifs and PMSes and all of that.
So, a culmination of the two things meant that this remaining uncertainty and it is not just the Indo-Pak ceasefire, it is also the US-China talks in terms of putting a pause on the tariffs for 90 days to a limited extent and also the Russia and Ukraine are now willing to talk to each other. So, suddenly, you see this whole black cloud, the dark clouds of uncertainty have got lifted, so which means now it has kind of opens the dam for A) more FIIs flows to come in because probably the ones who are tactically looking at India saying an oil price reduction, a dollar weakening means it is positive for India and were coming, but now we will see that the growth engines will get unleashed from an FII perspective.
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Same the case with domestic mutual funds. While the earning season was not the best and the greatest and the guidance was also not the best and the greatest, what has now come in because of this lift of uncertainty is the fact that the guidances which were generally not so great will now prove to be outperformed and then actual earnings will beat.
So you are in a situation where companies are now probably under promising but will overdeliver, so where this whole thing then comes to is that I see that with today's move decisive change has happened in the market, that growth now replaces valuations as a reason to now invest in India because so far what happened was despite the corrections that we suffered since September we continued to be at a premium over our premium.
Let me explain, India has always been at a premium to emerging markets, the long-term average is 62%, but even after the correction, the premium still was 75% before last week. So, the extra 13% premium was a little bit of hindrance saying India is trading above its long-term valuation average.
Now, today that is no longer a concern because like I said the market will now take its efforts away from looking at valuations and purely looking at the growth prospects for India and the situation is very similar to a year ago last April because from last April also the markets were expensive but from April to September they were on a bad bull run because markets ignored valuations and looked at the growth prospects that got punctured to some extent in September and the FII selling started, but that April to September move most probably will get now replicated from now for the next three to four, five or six months, so that is the change in the marketplace which happened.
A significant cut down in the US and China tariffs because both the countries have now decided to slash the tariff rates and within the emerging basket and within the Asian markets, yes, India has been one of those sweet spots. But with respect to this tariff cut announcement, do you believe that now there is a risk then wherein money will once again start flowing into the Chinese market? What is your thoughts?
Sunil Subramaniam:
So, in the previous time this happened post September was when China announced the stimulus if you recollect.
There was this shift to China and that caused the start of the correction. The question you are asking is it going to be similar now? Yes, there will be a shift to China because Chinese markets are very undervalued relative to India and those prospects are looking good. But this time it is not at the cost of India.
I would say it will be at the cost of the other markets. Both India and China, China will get a valuation allocation, India will get a growth allocation. So, I do not see that we will be actually necessarily suffering because of this and to that extent our inflows are always much less than the Chinese inflows, their market size, their GDP size is much-much larger than ours, so China will get its due share so that is not an issue at all, but India will not lose out is my view.
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