Start buying in tariff-hit sectors but diversify & stagger it over the next 6 months: Sunil Subramaniam

The long weekend seems to be working well for our markets because each time we are welcomed by a big move in the global markets. But would you say that the uncertainty on tariffs is behind us now, at least for the equity markets?
Sunil Subramaniam: I would not say it is behind us, but it has definitely calmed down. I think the markets have overreacted as far as India is concerned to this uncertainty of tariffs. So, all the clarity that is coming – whether it is negative for A country, B country; negative for America, – whatever has happened definitely reduces the uncertainty and fund managers can plan their allocations. India stands in a very good position here, because I do not think there is any negative or bad news.

I know there is this pharma related thing which Trump might come up with, but apart from that, if you see India’s position, whichever way this knife cuts the cake is going to be favourable for India. The markets are recognising that and also bear in mind that India specific, there has been a slew of positive things which have been happening over the last month or so, which the markets had not recognised because of this uncertainty overhang.

It started from the Budget related tax giveaways to the RBI’s policy being very supportive, to initial targets on the monsoon being very favourable, and India’s trade deal talks progressing well. There were some leaks saying that it could be signed very soon. So, everything is positive. So far, the market has not discounted this latest bit of Mr Trump rolling back for the 90-day pause as well as the fact that he brought down the tariffs on the electronic components.

All of these, plus the fact that the bond market has made Mr Trump to also now hold on in terms of the action because that is finally where it has hit them where it hurts. He was not worried about the dollar, he was not worried about the stock market, but the bond market because the US has a huge $7 trillion refinancing this year of their debt coming up. So, the bond market is something that they listen to and to that extent, the weakening dollar is positive for India. Brent at around $65, again, positive for India. The whole bunch of positive news around India which unfortunately could not be implemented by fund managers taking action and now with the results season coming, fund managers are going to be eager and waiting to take out guidance from the company’s earnings and quickly act.

Live Events

You will see this sustained domestic buying now sustaining the market and FII return, of course, it all depends on the global macro, how that pans out but definitely if the actions of the bond market are any indication, it means that Mr Trump is going to slow down in this whole. He has created that major big bang impact. He will now get to the negotiating table and do it and he will try to manage this situation, which is positive from an uncertainty removal for the stock market. Overall, it is reasonably good news and from a domestic perspective, it is time to gradually start accumulating the broad market.How should one look at this space because there was a time when they were benefiting from the China plus one strategy and it looks like almost two years later, a similar strategy is at play for these chemical stocks?
Sunil Subramaniam: I think that we will be a beneficiary this time of China plus one. Earlier, the China plus one meant we were trying to snatch from China and supply to America. Now, it is America trying to shut down Chinese imports and hence, the opportunity is now coming from the fact that with the bilateral trade agreement this is going to be one of those key spaces, I suspect would be a winner from the whole BTA. The only point you should watch out for is that if the US is getting shut down as a market, China will try to dump their intermediate chemicals to all countries including India. So, in any country other than the US to which these people were exporting, if China is going to compete by dumping, that could be a threat. Second, we have to put in strong anti-dumping duties for Chinese products into India because a lot of the value chain also comes from China. We need to protect our industry. So, both from a regulatory perspective and from a non-US market perspective, one needs to wait and watch all of these. From the US exports perspective, this will turn out to be a positive story for the specialty chemicals space.

Is there going to be some leg up for the recovering rural play and rural demand? Is that going to see an impetus once the monsoon kicks in and is above normal as IMD predicts?
Sunil Subramaniam: Yes, absolutely. And it does not need to wait for the actual monsoon to be normal. They say the khabar of a good monsoon means positivity. See, last year was a good year for the rural space because last year’s monsoon was also good. Harvests were better. For some reasons, inflation for the urban consumer went up. But for the rural population, rural demand was the one which was recovering and held up whatever consumption there was.

So, already the mood is turning positive there and if they know that they are going to sow well, the monsoon is good, their propensity to spend will be higher because it is the outlook for the future which decides today’s expenditure. So, it does not need to wait for the monsoon itself to come through. IMD’s forecast will see a follow through by Skymet. If that comes in, the news spreads about this itself, the spending will go up on the anticipation of that. So, yes, good harbinger of the rural consumption bit for this rest of the year.

What is your anticipation from some of these private banking names and where do you think leadership is going to come in once they report their numbers?
Sunil Subramaniam: Sequentially they will do better. They have good control over the NPAs. I do not see a problem there. Given the news that they are cutting deposit rates, it indicates that they are feeling very comfortable on the asset and liability space. So, we are feeling that the deposit growth is good enough, it gives that the overall sense of their business is good.

Following the rate cuts, their numbers should be on track and those with a good spread of network and I would rather play the top end of the private sector banks with the top five or six names because the comfort of regulatory overhang is definitely less with the top banks.

While up until now, it was all about looking at domestic facing sectors, maybe one could take a contra call on any of these names. Should one steer clear of the ones which are more susceptible to tariffs or what happens globally like Tata Motors, Sona Comstar, Bharat Forge, or Motherson?
Sunil Subramaniam: No, enter with a staggered approach. Do not put in all your money now, stagger it over the next six months, because what I see is the uncertainty will continue to prevail. There will be days of bad news and there will be days of good news, so there will be volatility. But once you are past this, once there is a BTA signed, I see a huge positive move coming up here. There will be a few losers as well. So, diversify across the pack, but start taking exposure and stagger it because in a year from now, in a year-and-a-half from now, all of these are going to benefit. The point is we would not know when exactly to start buying. So, I would say start today, but stagger the approach, stagger it over the next six months and diversify it across all these international sectors. I think it is a good time to start doing that.

What is your view on the entire quick commerce space as well as the QSR space because of late, a lot of brokerage notes are saying that it looks like the QSR space is going to make a comeback. Are you from that camp as well?
Sunil Subramaniam: Yes, I am of that camp. The only thing is that finding the winner is going to be a challenge. Again, my philosophy is to diversify across all the quick commerce players, but overall the quick commerce market is going to grow rapidly, in fact, boom. Who will win, who gives more discounts, who will incur more losses in a longer term win, that is hard to say. So diversify because it is a space as a whole which will do well and the market will respect that. Stay invested in that space. That is my recommendation.

Look at these FMCG names given that we are in a new financial year. Now, all those tax cut bonanzas are also at play. The interest rate cut bonanza also will be at play to benefit most of these FMCG plays?
Sunil Subramaniam: I would put more of my money in the consumer discretionary space as oppose to FMCG because the giveaway will be used by people to leverage to buy better products. So, whether it is bigger refrigerators, bigger air conditioners, bigger cars, so people use it to upscale because it is the middle class we are talking about and the FMCG piece, just because I get more money, I am not going to go and buy more soap or more hair oil.

I would closely track FMCG, from their input perspective on the margins to look at how the commodity cycle plays out. They are heavily dependent on crude and commodities. That is a good reason to buy FMCG from a margin perspective. But on core demand, tax giveaway will benefit the consumer discretionary more than the consumer staples. So just for volume growth, I would not go there. But for margin, I would look at specific companies and buy.