In an interview with ET Now, Satish Ramanathan , Director and Head-Equities, Sundaram Mutual, talks about the market. Excerpts:
What do you make of the current market conditions?
The main thing about this market is that what you are seeing is a little b it of fatigue. There is no participation from the retail side. Even mutual funds and DIIs do not have too much money to participate. FIIs are picking up shares, traditional FIIs who are increasing their country allocation or increasing equity allocation and hence buying a little bit into India. The good thing is that we have received a fair bit of money in the recent few weeks, which is a cause for cheer, but whether it is sustainable or not one does not know. So consequently the market is in a close trading range, stocks go up 5-7%, then fall 10% or so, and then they move up again and so it's more of a trading range market as it goes currently.
So do you see markets staying in this range of 17000-19000 for an extended period of time?
Yeah. This range will continue because what's happening is a kind of a reset that we are going through. We are seeing the corporate margins coming down even as volumes keep going up. We hope that the impasse breaks by then, so that the top line grows and then the bottom line starts growing as well, failing which you could see an actual breakdown in the market. If that were not to happen, then one can hope for the market to recover after 6-9 months. But as of now there is a consensus call to shift to defensives because the lack of growth in many of the infrastructure, metal, commodities and to some extent financials is pushing the market overly to defensives.
What do you make of the current global macro and by and large do you think markets have discounted the Greece news?
These are issues, which are hanging in the air and as a result, there is no clarity. But we have problems of our own. I do not think we need to blame the rest of the world for the market movement itself. The lack of clarity on several policy fronts for Indian industry is one which is plaguing it the most. The lack of confidence is telling in terms of investment growth, we have the intake of orders for infrastructure and capital goods companies have been amongst the lowest in several quarters now. So we have our own set of issues and add to that the global set of issues which is something which is clouding it up a little bit more.
What's your sense on how the IT pack is likely to pan out and what would your preference order be when it comes to Infosys versus TCS ?
The net takeaway from the two IT companies is that at end of the day, margins are down and profit growth is lower than the top line growth. So that would be the case for most of corporate India . We need to wait and watch as to how the results come through. It's early days, but that's kind of the feeling that most of the consensus estimates bring out. Corporate India's profit growth is going to be around 10-12% as per estimates and that would be still amongst the lowest growth rates that we have seen over the past several quarters. So that's something which we need to wait and see.
Which stories do you like when it comes to the defensive and consumer spaces?
We have taken a view that we will take a diverse set of stocks rather than just bet the house on a single stock. And if you look at it from that perspective, some of the consumer stocks still offer some value. We have for instance Jyothy Laboratories , which is in the FMCG space. We also have a couple of other defensive names as well, which we think will continue to do well. We have Raymonds, Arvind Mills , all of which we believe are plays on the domestic consumption theme at a much more attractive price point.
What are your thoughts on commodities and commodity stocks going forward?
The issue on commodities right now is that, will Asia continue to grow because end of the day, commodity versus dollar was one trade, which people were playing, but there was a high degree of correlation at that point in time. But of late the correlation seems to be giving up a little bit. The more important thing is what happens in China because if China continues to grow, then you have a long commodity trade. If China does actually cool off, which most people are fearing, then the commodity trade will not work irrespective of what happens to the dollar.
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'I made my money by selling too soon.'
Website: http://indianmutualfund.co.cc/
Blog:http://indianmutualfund.wordpress.com/
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