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'Investorsshouldenterthemarketthroughmutualfunds,notstocks'
Lastupdatedon:October19,201616:10IST

'Theyshoulddecidetheirallocationbasedontheirriskappetiteandage,andnotvaluations.'

"W

e expect India to be a significant beneficiary of FII allocation to emerging markets," SunilSubramaniam, chief executive
officer,SundaramMutual,tellsAshleyCoutinho/BusinessStandard.
Subramaniambelievesthatvaluationsinmanysectorswillbejustifiedbytheearningsgrowthandthedropincommoditypriceslast
yearhasnotyetreflectedincompanyearnings.
Doyouthinkthemarketisovervalued?
Wedonotbelievethemarketisovervalued,giventhestageatwhichtheeconomyis.
While the valuations are higher than longterm averages, several sectors, such as capital goods, are still not fully reflecting the
growthpotential.
Themarketisstilldiscounting201617earnings,butastheOctoberearningscomethrough,thefocuswillshiftto201718earnings.
Onemoreyearofearningsgrowthwillbefactoredin,soyouwillseevaluationsinmanysectorswillbejustified.
HowdoyouseetheJulySeptemberearningspanningout?
Thedropincommoditypriceslastyearhasnotyetbeenreflectedincompanyearnings.Thatimpactshouldstartcomingthroughthis
quarter.
Broadly,commodityintensiveandhighlyleveragedcompaniesmightshowwideningmarginsinthecomingquarters.
FromApril1,wehadthemarginalcostbasedlendingrate(MCLR)comingintoplay,whichwilllowerinterestcostsforcompanies.
Sointhenexttwoquartersratesensitiveandcommodityintensivecompanieswillshowbetterprofitmargins.
Thirdly,orderbookswillreceiveaboostfromfestivedemand.
Whatisyourviewontheeconomy?

TheinterestratecuthasshownthattheRBI(ReserveBankofIndia)isshiftingitsfocustowardsgrowth.
Theratecutwillbenefitratesensitivesectors,especiallyduringthecomingfestiveseason.
Themonsoon,SeventhPayCommissionandtheratecutwillcreateincreaseddemand.
Thegoodsandservicestaxcanboostgrowthto8.5percent.
TheconsumptionboostledbythemonsoonandtheSeventhPayCommissionwilldrivethefirstlegofeconomicrevival.
Thecapitalexpenditurecyclewillrecoverwhenconsumptionshootsupandthecapacitygapnarrows.
Mutualfundshaveremainednetbuyersofequities.Willthetrendcontinue?
GrowthinsystematicinvestmentplansispeggedataroundRs4,000crorepermonth.
ThismeansroughlyRs50,000crore(Rs500billion)iscominginwitha3to5yearhorizon.
Fundshavebeenbuyingcontinually,whichiswhyeventslikeBrexithavenothadmuchimpactonthemarket.
WhataretherisksforFIIflows?
FIIflowswillbesensitivetointernationalnews,thetimingoftheUSinterestratehikeandtheoutcomeoftheUSelections.
Buttheimpactwillbelargelyinlargecapsandlargemidcaps.
TheUSratehikewillbeapositiveinthelongrunasitwillbenefitIndia'sexportprospects.
Largecapsmayseeacorrectionintheshorttermfollowingtheratehike.
JapanandEuropearenotshowinganysignsofrecovery.Whilequantitativeeasingmaybeslowingdown,thenegativeinterestrate
cyclemeansmoneywillflowinsearchofhigherreturns.
WeexpectIndiatobeasignificantbeneficiaryofFIIallocationtoemergingmarkets.
Whatisyouradvicetoinvestors?
Investorsshouldenterthemarketthroughmutualfunds,notstocks.
Theyshoulddecidetheirallocationbasedontheirriskappetiteandage,andnotvaluations.
Valuationsreflecthighergrowthexpectations,whichwebelievewillplayout.
Also,investorsneedtoavoidshiftingmoneyfrommidcapstolargecapsjustgoingbyvaluations.
Inagrowingeconomy,thesmallercapsarelikelytodobetterthanmidcapsandlargecaps.
AshleyCoutinho
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