Make in India will not be challenged by Trump government: Sunil Subramaniam
Sunil Subramaniam, CEO, Sundaram Mutual says that the latest move by the government is a huge positive for the economy and for liquidity and circulation.
Does it seem like the market has well absorbed the shock, both global or for Trump victory and back home of the black money clampdown and the effects thereof or do you think this is just temporary relief and come tomorrow will be back to negative?
Both of these events were essentially black swan event, they were unexpected and in the run up to such events there was huge volatility. There was money waiting on the sidelines so two things have happened actually the day this announcements came in the markets started 1600 points down and ended up recovering that means domestics essentially buying and why were domestics buying further mutual funds were big buyers. One of the reasons this from a tactical perspective apart from what you have said is a fact that SIP flows have been strong right from the beginning of the year and about 4000 crore odd per month comes in but the key element is that the first and the seventh these are two major SIP dates in the market and more than 50% of SIP flows come in the first week. So most mutual funds were awash with this kind of a cash is about two odd thousand crore of fresh money that had come in and that was there to make a buying.
Second why the market drain because mutual funds and long institutions already know the sectors and the stocks they want to buy so when they have already evaluated those and there is a correction in those right they go and buy and the main reason for that is that the story is domestic and not external. So from a domestic perspective the Trump victory is not going to alter India’s economic GDP growth far significantly. Second is that domestic event that took place while there is a short term disruption in terms of banks, and may be the common man having to rustle about to get cash long term you are looking in with the fact that huge amount of the black money which is going to come into the system a) if it is disproportionate it is going to get tax so government’s incomes are going to go up. b) money which was circulating outside the banking system is going to come into the banking system so there is CASA.
Third, this is a planned move by the government both from the fact that the Jandhan Yojana programme, the fact that the UID programme was there Aadhaar cards to open bank accounts and then third is a GST. For all these three this move was something which was hidden and expected so government was clearly working to a plan so all these three are going to get a big boost and ultimately this is going to translate into banking sector getting a huge amount of source of funding and hence fiscal deficits, cross interest rates all are going to be trending down. So I think this latest domestic move by the government is a huge positive for the economy and for liquidity and the circulation with that being said so it is a good time to buy into India base stocks and that is what the market realises. So we expect that this will continue but what are the two risks that are still there you mentioned with the markets correct two things in the case of Trump we are hoping that the bark is worse than the bite, so the talk in the run up to the election and the actual actions. So over the next few his initial speech was very conciliatory that is why the US markets also recovered but over the next few weeks and the kind of people he selects to be Secretary of State, Secretary of Finance and all of that in his government, the public speak that he does will lead to how far is he going to walk the talk or what he talk that is one thing.
Second thing in the US I think market has pretty much discounted a US rate hike but that would say that probability will probably come down now because Trump’s speak was more towards fiscal stimulus as oppose to monetary actions and one of the things that for him cater to his vote bank is to regenerate employment hence larger infrastructure funding and hence government will have to finance that from a Keynesian model. So he may not be so favourable towards another rate hike because that is going to increase the cost of the government, so I think the US rate hike now is in a little bit of a different. So those are events in the coming weeks which will impact markets so one cannot say it is a smooth joy ride that everyday market will go up but subject to these on the long term from an India perspective I think economic fundamentals have got strengthened with the latest traction and so I would say it is a good time to buy whenever these events happen.
So you have spoken about what Donald Trump means for the world etc. but I want to ask you specifically is about exports and certain sectors back home would you now for example be wary of IT or a certain stocks that are export oriented when it comes to the United States because what if he does follow with the protectionist theory and he is talking of pump priming the American economy by $500 billion?
So if you deconstruct the whole Trump thing right his main he was wary was rust belt which is their manufacturing industries had lost jobs consistently over the last two decades. So his main thing see this services sector which is IT and what India as a country supplies is in the services space and in the services place there is not enough qualified American population to substitute that right the blue collar worker in America that is the work he needs to regenerate, it is not about the services as much as about the manufacturing and in manufacturing for driving manufacturing, driving the steel sector, the railways, the rail road’s is that government has to go and spread so Trump’s actions are more inward looking in terms of giving the kick start pump prime the economy to create local jobs and these are not services jobs, these are manufacturing jobs. So I would say the IT sector which is servicing the service the kind of skill sets is there it is going to take a long time for the US to build those kind of a thing that is one. Second the way he is likely to attract this is that he is likely to have a higher tax on people who are outsourcing to get more income so it all means that the cost of outsourcing is going to go up but as long as still a margin vis-à-vis doing it domestically in the US, US corporations are still going to do that. So there is definitely going to be little bit of margin thing but I would say demand for IT services is not going to drop and US cannot domestically substitute that that is one important thing.
Second thing on an export perspective also see manufacturing exports to the US right which is what is likely to get substituted but from a US consumer perspective just because the US guy is going to be manufacturing that right the wages are going to be higher the products are not going to be competitive so what I would say is that the way Trump is going to act like I said is to create fresh jobs in new sectors and the existing consumption demand which is substituted from outside of the US is probably going to continue buying in that is one thing. Third thing which you should remember here is the fact that for India, the export sector is important for Make In India but the nature of the Make In India programme you got to look at is that it is more of an import substitution rather than export generation why I am saying this is in defence government allowed 100% FDI why? So the fundamental Make in India thing it is not going to get challenged by the Trump phenomenon is what I wanted to make a point.