Sundaram Mutual had moved few ranks up in terms of assets under management (AMU) with the acquisition of Principal Asset Management Company after successfully wading through the Covid impact. The fund house now has an average AMU of about ₹40,000 crore as of June quarter.

In an interview with BusinessLine, Sunil Subramaniam, Managing Director, Sundaram Mutual Fund expects the long-term growth story of India should drive bull run in the market. Excerpt:


What is you outlook for the market?

We are bullish on long-term outlook. The government’s financial position has been improving on the back of growing GST collections and successful 5G airwaves auction. Moreover, corporate earnings in the June quarter was not that bad as it was projected earlier. The government has already incurred 57 per cent of the planned capital expenditure. This will have a multiplier effect on the economy.

With overall capacity utilisation at 72 per cent, private sector capex, too, will recover. The Indian economy is reasonably on a good wicket.

As we all know, liquidity drives the market. About 40 per cent of the free float in the equity market is still owned by foreign portfolio investors. So what they think about our country and economic growth is critical.


Is the recent correction in the market a wake up call?

I do not think so. It is more to do with the usual fall in a bull market rather than the one leading to a bear market. The primary concern earlier that led to huge pull out of FPI money was the soaring crude oil prices since we import 85 per cent of our requirement.

With the recessionary force coming out to play in developed countries, oil is going to be on a steady declining trend after their winter goes off. Decline in oil prices and a recovery in Indian economy augurs well for attracting liquidity. This is already reflected in the first quarter FPI inflows.

Moreover, the sharp fall in commodity prices was not fully reflected in the margins of corporates in the first quarter results. The benefit of fall in input costs will start reflecting in commodity-intensive FMCG and auto sectors in this quarter.

In fact, this will give an indication on next fiscal’s earning potential of these sectors. In all, India is inching towards sweet spot and I do not see any threat in this journey.


Is the US Fed rate hike a major shock for Indian economy?

It will be a major shock for global economy. The increase in interest rate from 1.5 per cent to 8.5-9 per cent is something unbelievable. The US Fed is out to fight inflation and I am not ruling out further rate hikes. The rate hike is going to bring on recession much faster as it will kill demand.

The recessionary situation will bring down the oil prices further. Moreover, in a recession, there will be an effort to not to cut liquidity so as to strike a balance and support the growth. It augurs well in an international scenario.

Interest rate hike by US Fed does not necessarily mean that it will be followed by RBI. About 48 per cent of our CPI basket is of food items. Whatever rate hike RBI has done so far is more to do with the currency perspective rather than fighting inflation per se. I do not see Indian interest rate rising as rapidly as that of America as RBI stance would be to support growth.

There is no need to worry about domestic inflation much as the good monsoon will bring down food prices naturally. Another 10-15 of CPI consists of oil and transportation which will ease with curde oil prices declining. So 60 per cent of CPI is non-inflation sensitive. I do not see inflation a big worry for India. RBI may get into rate pause mode even as US Fed continue with rate hikes.


Does it mean no more rate hike by RBI

Not necessarily. RBI rate hikes are currency driven. If the inflation print comes above six per cent, it gives a weapon for RBI to fight currency. They will use it smartly to tame rupee. There is no big concern on inflation for India as much as it is for the US. Further rate hike by RBI will be done more to curtail volatility in currency. Our rupee depreciation against dollar was much less compared to other emerging market currencies.


Will the global recession hit India’s exports?

Yes it will. However, the fall in exports will have an impact of one per cent of our GDP. In worst case scenario, India’s GDP growth may slip from seven per cent to six per cent. With US slipping into zero per cent growth, India’s six per cent growth will look very good. In the land of blind, the one eyed is the king.


Do you expect FPI outflow given the US Fed is preparing for another rate hike?

In my view, more than US Fed rate hike, the rising oil price drove FPI from Indian market. The threat of FPI pulling out from Indian market is only on paper. Of the $9 trillion of US money floating around, they had said it will be brought down to $7.2 trillion by next year and today about $8-8.5 trillion is still there.

Relocation of investments from India happens to commodity exporting markets. With the commodity prices falling, we need only that money to come back. So India is more attractive than other emerging markets.