Sunil Subramaniam, MD & CEO, Sundaram Mutual, says he “would tend to be underweight on external oriented sectors. This includes metals, energy and even IT to that extent. We believe that the growth story of the world is at least a couple of years away in terms of the world booming back to growth. It is going to be an extended slowdown. False alarms will keep coming. We would rather stay cautious on the side lines.”
What will happen to global sectors? Metal is a bet on China. IT is a bet on the US. Manufacturing is a bet on Europe. What happens there?
Globally we are not very positive on what is happening in the US GDP data and all seems to keep surprising us. But if you look at the credit cycle that is happening there, people are revolving credit like there is no tomorrow. There is a slowdown in jobs. So, we believe that a slowdown is inevitable. Now, between a hard landing and soft landing, one could have probability factors but we do not think that there is a growth story in the world yet.
We believe that the world is going to go through an extended period of slowdown. Europe will suffer a little more. So, we would tend to be underweight on external oriented sectors. This includes metals, energy and even IT to that extent. We believe that the growth story of the world is at least a couple of years away in terms of the world booming back to growth. It is going to be an extended slowdown. False alarms will keep coming. We would rather stay cautious on the side lines.
The story behind China is that not only are they linked to the developed world’s growth, but there is a distinct political shift in America, especially on buying from China. Mexico and Canada are now getting a much larger share of imports from America. So, there is clearly a political angle to the fact that they are buying less from China, adding to China’s own structural problems like high wage costs, declining labour population and all of that. So, in China, we are not very bullish from an economic perspective, also from the transparency aspect.
Overall from a world perspective, I would say that for us, domestic India looks far more attractive than the world at this stage. To some extent, the flows are discounting that story and that is there. But I still believe that our growth will continue to surprise the market . And hence, India is the place where the bets should be.
I see that these days, the rate of change is very fast. Boom in manufacturing and within the next three months, manufacturing stocks are up three-four times. Boom in defence and within a year, defence stocks are up three-four times. Boom in railways and those stocks are up five-six times in less than two years. Is it happening very quickly?
Yes, absolutely. And that is the problem with hot button tendencies. Three things I would point out here. One is the general hot button tendencies. Since there is so much liquidity and the desire and the demand to deliver returns at every stage, every month, every quarter.
The need to keep rotating among people who deploy money is number one. The second aspect which leads to this is also the demography. The investment demography is far younger. They do not have the patience and they are too eager to act. So the youth, whether it is through mutual funds or direct equities, is contributing to these reactions.
From foreign investors also, there is a tendency to shift to ALGO. In ALGO, you fit in certain pre-set formulae and when those triggers happen, the machines triggers by itself. So there a significant promotion of ALGO trading and attached to this is also a larger story, which is that the move to passives across the world means that fund management fees overall have come down. So in order to stay competitive, while being extremely active is very difficult in the foreign markets, the smart beta,, is adding a little bit of tickers, momentum-based or factor-based investing.
These are again, to some extent computer-led. The computer throws up a formula based on track record at this stage. You put in money and that changes the ratios because no money has flowed in, the PE ratios have gone up. And then the computers say, no, sell out and go to the next. So, this is a part of the internet age, part of the information age. We are in an information revolution and need to learn to address this and go forward.
One can sit on the sidelines and keep criticizing these things, but if they are actually happening and making a difference to your life, the best thing is to keep track, understand it and make a collective portfolio allocation at our end.
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