The markets are in a holiday mood right now. What has been your observation so far? It has been a very good run. The macro cues are also pretty positive. How much is already getting into the price now?
Sunil Subramaniam: I would say that it is not fully into the price and the reason I say that is because this is the period when you have hedge funds booking profits, those who entered six months, a year, year-and-a-half ago, the Indian market has been one of those where they have made the best returns. As you know, hedge fund managers need to book profits before the year end in order to be able to receive their bonuses, so at this time we have suddenly got this flood of good news for India.
The election result gives us policy continuity, oil prices are stable and a rate cut scenario in the US right up to 2026. So, everything looks good and almost Rs 60,000 crore has come in post the election result. This would be a gross of maybe 70 or 80 because there would be profit booking. So, this week, we will see a consolidation because as it gets closer to Christmas, fund managers go on holidays and so there will be less activity but also the remaining profit booking that needs to be done, would be done.
I would say that till the new year, I would expect this to consolidate but in January, I expect further inflows to come in from FIIs and take the index to new highs and that will mean that the hedge funds who booked profits will come back in and from a perspective of the market, India still justifies the premium that we are charging because in a world that is slowing down, our GDP numbers are coming out better than expected. I expect next quarter’s GDP and the EPS numbers to be good because the festival season would reflect those numbers.
Speaking of the festival season, I do not know if we have really seen that much of an incremental uptake across sectors and that has been acknowledged by corporates across the board. What is your outlook when it comes to some of the consumer facing sectors and how do you expect these individual pockets to perform for the year ahead?
Sunil Subramaniam: The top line growth has been good, the festival demand has been good and the key is how are these on margins, how much of discounting has happened, how much have they given up on margins to achieve the sales that only the earnings guidance starting from Jan 10th would tell us. But, overall, I got a broader sense that the festival season has been good. There have been pockets which may not have lived up to expectations but overall I am quite happy with what I have heard so far on the street and I think the EPS numbers of course we will have to wait and see for the guidance.
The second thing is that on consumption, what gives me confidence is independent of the festival, in the run-up to the election, there is going to be liquidity pumped into the economy both because the government would try and do a lot of direct balance transfers of subsidies, you will probably see a lot of liquidity flowing into the economy and that would give a boost to mass consumption. I am optimistic that not only will the festival season numbers reflect well, the guidance in January for the next few months will also be good and then the summer as we know last two summers have been disappointing from a consumer discretionary perspective, hopefully this time around with the election around the consumer discretionary story will also step-up during summer. So, overall, I am fairly optimistic though on the EPS side we will wait for the numbers to take a call.My question to you was on the IT pack. Do you think the news that came over the weekend, where one of the MOUs of one-and-a-half billion dollars got cancelled for Mphasis, could just spell bad news and there could be more to follow or one should not read too much and take it as an isolated event for IT?
Sunil Subramaniam: Two things here. Yes, specifically there was a bad loss for that specific company but remember if one company loses, another gains. I am looking at it from an overall IT demand point. There will always be winners and losers between companies as they fight for market share. So, stock specific, there are actions which fund managers would take but overall if you look at the IT pack, only two things are there and they are slightly contra in flows.
One is that the world in a slowdown would not mean great news for IT as a growth. I would say high single-digit growth to low double-digit growth is the match you can expect, not any roaring high double-digit growth from overall IT pack, number one.
At the same time, if you look at the scenario around flows and the rate cut scenario, you are going to see a lot of flows into India and what we see is that a significant amount of those flows are passive flows. Now, the thing with passive flows is they buy everything in index. I expect IT to get strong buying support from FIIs because it is part of the passive flows and even within active flows there is a safety element to IT. So, like I said company specific there could be a rotation of business around the pack, but IT represents a safety-oriented sector for an FII.
So, I expect strong buying support in IT so it would not have a great fall. I expect IT to be a consolidator. It will not show a breakout either way over the next few months but it is something that should be a key part of everybody’s portfolio because these are good companies, solid companies, well researched, well aware and the FIIs are aware of their buyers and hence the knowledge level is quite high. I would say that we should hang in there in IT on a consolidation basis but a fresh breakout in terms of their growth would only happen when the world comes back to a growth path.
