Key triggers that may dictate stock market rally in near term, explains Sunil Subramaniam
equity market is at a record level but valuations are still around the long-term mean, which may lead markets to touch higher levels if earnings growth plays out, says Sunil Subramaniam, MD and CEO, Sundaram Mutual. In an interview with Livemint, Subramaniam talked about the FII inflow trajectory amid signs of further rise in interest rates, broader market outperformance, India’s attractiveness for foreign investors, and the domestic mutual fund industry.
The attractiveness of the Indian market is a function of three factors. First, the pro-active and pro-business approach of the Government through the PLI scheme combined with prudent fiscal policies and strong support to capex and infra.
Second, the long-term growth potential for our GDP (and hence EPS) from manufacturing, services, and consumption sectors is driven by our labour-related advantages in a world moving towards China+1. And third, the stable outlook for oil and commodities in a slowing world (India imports 83% of its energy requirements) is a huge positive for the fiscal situation, inflation, and EPS (earnings per share) growth of commodity user sectors. The recent return of the FIIs has made select large caps relatively expensive and domestic flows have tended to be diverted to broader cap curves.
Further, domestic GDP growth is more correlated with mid and small-cap EPS growth. The relatively lesser liquidity of these stocks means that a small inflow of liquidity leads to a large rise in prices.
Further outperformance will depend on the earnings outlook and will be stock specific. Also Read: How HDFC Bank HDFC merger will impact equity mutual funds — explained We expect discretionary consumption (durables, auto, housing, high-end retail) to display good
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