Tariff hit sectors to recover with strategic action, deal-making: Sunil Subramaniam
Synopsis Sunil Subramaniam views the tariff impact on Indian textiles as a short-term jolt. India's competitiveness may be restored through interim deals, currency adjustments, and productivity improvements, making the sector a viable long-term investment despite near-term volatility. Sunil Subramaniam, Market Expert, says today it is a knee-jerk reaction. It is specific because relative to competition like Bangladesh and whoever is in that segment, we seem to be having an adverse tariff. But why do I feel it is overdone quickly because as the interim deal is signed, this will be top of the table that India will want at least a level playing field with our other competitors in the textile field. So, I think that today it is about 5% to 7% less tariff for us, so that is where we will target to be at least on that front which I think that we will succeed, that is number one.
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Sunil Subramaniam: See, right now, yes, because in the weeks before FMCG has not been performing from a relative value perspective, being a pure domestic kind of sector. Second is that you saw that the commodity prices are generally easing. So, FMCG is a huge consumer of commodities. So, the expected thing is that sales volume will pick up, but the margins should also shore up.
Third is, of course, the overall monsoon. You are seeing the effect of the monsoon even on two-wheeler sales. So, monsoon definitely has a positive impact on the bottom of the pyramid customer in the rural areas and FMCG as you know is largely also driven by the rural oriented sales. So, the positive outlook for the rural economy is translating into the FMCG pack and the reason that it is holding fort there, though other consumption related sectors like reality and auto under pressure is because it was not performing in the weeks before, so there is a kind of catch-up rally happening there.
But looking forward, since the entire consumption pack whether you take it as consumer durables, you take it as auto, you take it as realty, or you take high-end retail, all of these are insulated to some extent from the tariff related concerns and so there will be a buying step up there. Now what is happening here is while they are also still correcting, because, see, domestic fund managers are the ones who have to support the market, but what has happened is that since April, May, June, they have put in Rs 60,000 crore in the month of May, in the month of June, and in the month of July. So, you look at it Rs 2 lakh crore has been deployed by DIIs from April, May, June, July.
ADVERTISEMENT So, to some extent I saw that the mutual fund cash balances which have spiked up to 7.5% have come down. What I am saying is there is still some cash they can deploy but a lot of it has already been deployed. So, today because of the FIIs selling, if fund managers want to buy, even yesterday you saw there was five odd thousand crores of FII selling and five odd thousand crores of domestic buying, but still the markets were under some pressure. So, the point is that domestic fund managers have less room to go and buy whatever they are positive about. They can only buy that which the FIIs are selling, that is the second point. The third point is that they are also being a bit smart and waiting for some correction to happen before buying what they want to buy anyway, but not stepping in today because they know that there is pressure from the tariff related FII front so they are waiting it out.
ADVERTISEMENT So, the volatility will continue, but ultimately domestic fund managers will step in and buy domestic oriented sectors where consumption is obviously top of the line, but I also draw attention to capital goods because you saw the numbers indicating that this and if your consumption improves at the bottom, like two wheelers, then your capacity utilisation will go up because so far it has been K-shaped consumption and that has not helped the numbers, it has only helped the value.
Sunil Subramaniam: My brief view first of all is that today it is a knee-jerk reaction. It is specific because relative to competition like Bangladesh and whoever is in that segment, we seem to be having an adverse tariff. But why do I feel it is overdone quickly because as the interim deal is signed, this will be top of the table that India will want at least a level playing field with our other competitors in the textile field. So, I think that today it is about 5% to 7% less tariff for us, so that is where we will target to be at least on that front which I think that we will succeed, that is number one.
ADVERTISEMENT Number two is that the government does have in its hands one more tool to use which is currency depreciation to make up for the difference. So, if we allow our rupee to weaken a bit, we can be competing. The third is, this is a good trigger for productivity improvements including some mechanization in the textile sector and India being the fourth largest there, we have the ability to do that. So, we will come out of this crisis very quickly.
So, I would say that for a person who is willing to take a little more volatility and uncertainty around that sector, it is a good time to start accumulating that sector because historically it has been a strong sector for us and we will come out winners. Yes, in the short term there will be volatility, but like I want to use a Hindi word darr ke aage jeet hai (victory lies beyond fear) , definitely in textiles we will not give up our leadership position. The government will definitely do its best efforts to sustain that.
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