Sudhakar Ramasubramanian of Aditya Birla Money has big plans to bring about a turnaround in his company Aditya Birla Money’s profitability. In an interview with Business Line , he shared his views on the markets.

Do you think the latest SEBI recommendation on merging all FII investors into a single category will help attract flows?

Procedural benefits such as the cost of doing business in India will come down which will help, but it would not necessarily attract new flows into the country. It is a welcome step but structural changes are needed to attract more money into Indian markets. We need to get some specific infrastructure investments moving and (also) address land issues.

Twenty to 30 per cent of India’s GDP used to come from investment-led demand through large Government projects. But this time around, we are yet to see that happening.

So, the capex cycle is a problem and the interest rate drop alone is not going to bring in new projects. We need rapid clearances, an environment where consumer confidence is high, where entrepreneurs are confident of setting up a project and making it work.

What is your outlook on Indian equities?

Volatility is extremely high because of the low liquidity in the market. The predictability of the markets has come down substantially because of the short-term trading movements within a wide range of 10-15 per cent.

Retail and institutional investors are unable to adjust to such volatility, which in turn is impacting market depth and leading to low liquidity and high volatility. So, till the time volatility doesn’t drop, predictability of markets is going to be a struggle. But in the long run, markets will be in line with earnings growth.

Markets will be driven by liquidity in the short-term and on corporate performance in the long-term, assuming multiples remain same. I don’t see market valuations changing yet, as risk levels are very high.

Unless retail participation comes in, overall market valuations are not going to go up while specific stock valuations for individual companies may continue to remain high.

What is your advice to retail investors in a volatile market scenario?

If you know of companies that are fundamentally doing well, then use the volatility to your advantage and buy when prices are low to benefit the most.

We are advising specific stocks, bottom-up at the right price and use of volatility to start buying slowly rather than sell.

This strategy can be adopted for large-caps and specific mid-caps, too. Most mid-caps, except fundamentally sound companies, should be left out as risk is very high.

What could play spoilsport?

Currently, we have two big troubles on the macroeconomic front — one is the current account deficit (CAD) and the other is the aalling rupee, reinforcing the former problem. If the Government can adjust and work on the CAD the way they are trying to deal with gold, it would be a huge positive for the markets.

What sectors are you betting on?

We should continue to look at consumers, services, select export-orientated businesses and pharma as they will continue to do well. We are open to investing in other sectors too, in case we see an opportunity.

As a fund house, what is your top challenge now?

It is very difficult to keep investor interest alive. Equity participation is at an all-time low. Non-institutional and non-prop investors are doing only Rs 5,000-crore worth transactions a day against Rs 18,000-20,000 crore three years ago.

Confidence has taken a backseat after investors have suffered in a big way and are not interested in investing.

The same is the case for equity mutual funds too, that are facing huge redemption pressure. So, the money is not coming in.

Retail investors are still focussed on other forms of investment. They would rather be happy with a straight return on fixed deposits than on other options.

What are your expectations from the upcoming monetary policy?

Any prediction becomes untenable because of the currency’s movements. If the currency continues to depreciate from the current levels, there is very little hope for rate cuts. But if it appreciates from the current levels, then interest rates could turn benign.

We expect a 75 basis points rate cut over the next year.

We need visibility and direction on the rupee’s movements.

It takes at least six months for the currency to adjust to a new level. We are going through this cycle repeatedly and this cycle should reverse.

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