Good bull mkts take breathers: Sunil Subramaniam | Economic Times

By Tamanna InamdarIn a long term bull rally, there is always taking off of profits by people with different timeframes in investment horizons, says Sunil Subramaniam, CEO, Sundaram Mutual Fund. Would you say that the correction of the overheated market is welcome and these are just profit bookings? Or are theFII outflows worrying you?A good bull market is always represented as one which takes regular breathers. Look at the Sensex or the Nifty charts, you will find that a bull rally is one which always lets off steam and then gathers steam because that is the nature of the ebb and flow of liquidity. This actually strengthens the concept that we are in a long term bull rally and there is this taking off of profits because people come with different timeframes in their investment horizons. Suppose somebody in March last year had said I am taking a roughly one-year horizon and he says do I wait for one year to pay the long term capital gains or do I just book the profits now? So that is one. There are different tenures of players and this is actually an indication of a healthy bull market. Second, the Budget is a few days away and one, also the recovery in the advanced countries is going to be a little bit faster than India in the shorter run. In the longer run, that may turn around as part of the enormous amount of liquidity that has been pumped in, has gone to gold, part of it to Bitcoins and part of it to fixed income. But part of it has gone to equities and some of that now is going to the real economy. So, when the real economy recovers, this reallocation of capital, there is always a little bit of taking off from wherever it has gone up the highest because you take your highest profits and redeploy it and that is the second thing that India is facing. Third, if the world economy revives, the commodity cycle revival will follow through and when the commodity cycle revives, it is not good for India as we are a commodity importing country whether for Brazil, Russia and South Africa -- most of the other emerging markets which compete for capital -- are commodity exporters. Their markets suffered in this period over last year because commodity prices were going down. Now a little bit of reallocation of capital between a commodity user like India and a commodity exporter like other emerging countries, is also playing out/ So what is the Budget going to do? I believe it is going to allocate massive amounts to infrastructure and those are the stocks which have not done well. So, people want to redeploy but they will wait to see what the Budget says. It is better to sit on cash and make that buying decision rather than go and sell post Budget and reallocate portfolios. A lot of all this is at play and this is not a cause for undue worry. If you look at the various indices, even within the large cap index, probably 20-25 stocks have accounted for this rally. There are another 75 stocks within the large cap space, the whole midcap and small cap bucket which are probably inching near the January 18 highs of the market. There is a lot of value there lying to be picked and people are just waiting on cash to make the right investment decisions in a post Budget scenario. So, I would not have any undue cause for concern. It is the good sign of a healthy bull market.What is happening with the GameStop stock in the US? Everyone is fascinated by this story where retail traders are taking on hedge funds by shorting these companies which no one thinks are going anywhere. What do you make of this phenomenon?This term called Robinhood investors has been coined for these investors in the last one year and they have come up abroad and in India. There is a lot of information on how in times of a momentum plays and liquidity driven rally, almost anybody can make money. So the shorting opportunities rise. To me, it is like going back to the old days of badla and where there were both kinds of players -- shorters and the buyers. We need both types of views to play out. Sometimes these people win but that then helps long-term players like mutual funds to invest even in a slightly lesser liquidity because these other players provide liquidity in the market. So while Robinhoods are treated as bad guys by a lot of people, they are an integral part of the capital markets and they play a very healthy role in providing liquidity. They are essential for a country to tap the potential of the capital markets for economic growth. I would say that it is a very welcome and healthy move that all these things are happening.