The IT sector has given one of the highest returns in the last three years, a very acceptable 23% growth in the past year as well. Do you think that run will continue?
Sunil Subramaniam: I am not so sure because the western world has to really come back to a growth path for this to sustain. IT grew on the back of the slowdown and those YoY and the numbers are looking good. But overall unless the outlook from the western world moves back to a strong growth recovery, I do not see IT earnings continue the strong growth path. But from a stock market perspective, they are always something that you must have in your portfolio because they provide that element of safety and a cushion against rupee depreciation.

There are several moving pieces right now. Only yesterday, we were talking about the BSE’s market capitalisation crossing Rs 400 lakh crore for the first time ever and it is driven a whole lot by retail participation. Where do you see maximum value for growth in these markets for a retail investor today from all these moving pieces right now? How much of that unfolding story on sectoral domination is likely to emerge in these Q4 results this time around?
Sunil Subramaniam: There are two things here. No retail investor should enter the market in anticipation of the quarterly earnings or with an outlook for less than a year, a year-and-a-half at this point in time because a lot of the good news has already been discounted. It is already in the price.

Second, you see the retail investors who are entering through mutual funds are by and large doing that through SIPs. So, for them, it does not make a difference. It is something they should stick to doing. But when a retail stock trader is coming in, I would argue that he should be cautious at this point, wait for the results. There could be a few negative surprises, so wait for the information to come out.

Third, I want to stress here that far more important than the actual earnings is the guidance from these companies on what the year ahead looks like. Because what you are going to see in earnings is not just the quarterly earnings, it is for the full year FY23-24. But what is 24-25 going to look like for them? How do they see their order books? How do they see the whole thing panning out? I think stocks will react. Initially, after the earnings comes out, there could be disappointment, there could be euphoria.

But soon, within a few days, people will look at what guidance did this company give and how is my FY25 EPS projection going to look vis-a-vis what I earlier thought it was. I think the market is in a stage where it is going to move one year forward in outlook. So, guidance is far more important. I would encourage retail investors to stay cautious on the sidelines at this point, wait for the earnings results, wait for the guidance, and then take their fresh allocations. The reason I said a year, year-and-a-half, is I think we have to look for signs that the private sector capex cycle is beginning to unfold. The RBI governor mentioned that he is seeing green shoots, but honestly, it has been a lot of announcements, a lot of talk. But on the ground action, I would like to see, if apart from the government and some FDI, the private sector capex cycle is showing through in the order book. Arguably for the next year-and-a-half onwards to three to five years, infrastructure, capital goods, industrials segments will look very attractive to take a fresh position in after the earnings season.

The Budget is going to be an important piece for the markets, there is no taking away from that. But right now, we are also seeing the rising crude oil price, gold hitting record highs despite a strong US dollar. When you consider these moves, what should be the largest takeaway for investors when it comes to positioning their portfolio for the future?
Sunil Subramaniam: Diversification is the key because in some sectors, the market has over-anticipated the futureand in some segments, there could be positive surprises. It is hard to sit down and do the guesswork on what actually is going to happen because markets, like he said, I like to use a different word in terms of predictor, say lead indicator.

Markets very often are lead indicators of economic growth. So, the markets are predicting a strong growth in the manufacturing cycle. Now, the point is markets do not know when; there’s the issue of timing. So, the point is that you have to diversify because things will ultimately play out but there could be intermittent shocks,. Also, when you are playing the commodity cycle, oil actually for India is a contra to the commodity cycle because oil prices, when they rise, there is a nervousness within hedge funds that the Indian rupee would tend to feel pressure, India’s inflation would tend to feel imported inflation pressure and there tends to be panic selling from India if oil moves past $100.

Because remember, October onwards there is going to be winter when the heating demand for oil will crop up. Second, do not forget after the elections, we have the big US elections. The Trump versus Biden debate is another thing that is going to hog the headlines and there will be lots of political announcements around that and how the war is going to play out if Trump comes back to power. So, a lot of uncertainties.

So, I would suggest not to put all your eggs in just a couple of baskets and diversify. Second, have outlook portfolios. You have one-and-a-half years, a three-year and a five-year outlooks. Spread your portfolio across different time zones so that something or other will play out for you. The key is to be diversified. Do not go sector and stock choosing at this point from a retail investor’s perspective.