No mass cancelation of SIPs, practical difficulties slowing down flows: Sunil Subramaniam

How are things looking currently ? Raamdeo Agrawal says this is not a situation that is going to completely disappear in 40 days and the ramifications are likely be felt for a while. While SIPs were holding out for a long time, we are now starting to see the impact there too. First tell us how do you think things stand currently?
The important context change is that today it is the lockdown which is hurting more than the virus itself. India is probably one of the best countries in the world in terms of how they have managed it from a medical perspective, but we have had to take a very harsh lockdown step, which has had an immediate impact on the economy. A lot of other countries are taking a balanced purview; they are allowing parts of the economy to function, but the death rate is much higher there. I think we have been very careful, which is a more prudent thing to do, is good for the health of the economy in the long run. But we have created our own sort sharp Black Swan event by this rigid lockdown. Medically, it is perfect, bang on, but economically it is going to have a very severe impact.

I agree with Raamdeoji that this will not go away in 40 days, because there has been demand destruction and it is not just the postponement of demand, which would bounce back. There would be job losses; and it is going to take time to get back the migrants who rushed back to their hometowns. Clearly, the lockdown-created pain is going to be there for a fairly extended period. That is what we need to factor in. But that is the lesser evil compared with the fact that it may have been far more heartrending for us as a nation medically. The nation took precedence over the economy and the market here.

In that environment, what would you say is the right strategy to approach things? Are we looking at a situation where things will remain volatile? We have seen a slight move higher in the past few sessions in line with global cues. Is that temporary? What is your strategy at the moment?
Markets are a lead indicator of the economy. If you look at the sharp March correction. Over the past one month, markets are up about 20 per cent. So the markets are telling us that there is going to be an impact and we have corrected now, and the markets knows the bad news -- whatever is visible – and the sectors that are going to get affected deeply, and it has already priced that in. Secondly, there is a permanent impact of some of these things. Now oil is clearly a long-term positive going by all the reports that I read. Analysts we have spoken to say in the medium term, oil price is likely to stabilise around $30. Forget about the short-term negative price; all of those are a very temporary phenomena. Over the medium term, we are looking at a $30. Now let us discount that $30 by another 50%, let us say it will go to $45-$50. For an Indian economy, which was factoring in $75 for oil, the price coming down to $50 itself is a huge saving. So that is something which is very positive for the Indian economy in the medium term and markets will recognise that. The problem is that, economies will only do a long, broad U-shaped recovery, but that is not necessarily true of the market. Because the market discounts the future. The moment they say the U is beginning to turn, the market will have a sharp V-shaped recovery.

So I retain my view that the markets are going to see a V-shaped recovery. It is important to stay invested. The problem is, I do not know when that V-turnaround is going to happen. It could be three months, six months, eight months, may be a maximum of 12 months. From an investor’s perspective, whatever you have already invested stay invested. But there is big difference between staying invested in stocks and in mutual funds. Because there is an important short-term reallocation of portfolio, which is critical. Because while mutual funds buy stocks with a three- to five-year outlook, they have a benchmark of the indices to manage. That means they always have to keep their eye on the near-term bumps and the potholes as opposed to the long-term destination. This is a critical point, because you will see mutual fund portfolios shift to the so called safety of FMCG and healthcare in the short run, but do not expect that to last forever. NBFCs will be in the short-term negative, but they could quickly switch track when they see the green lights in the economy at the end of the tunnel. A stock picker or an individual stock market investor would not be able to just enter and exit a stock. There lies the value of investing through mutual funds.

Point number two is, over the last month if somebody invested in a portfolio, he will fund at end of three years that March 2020 was brilliant for investment in terms of the SIP instalments. Looking at the portfolio today is not the right thing to do, look at it from a medium-term perspective. When you stagger it, you are making sure that if the market recovers in three months or in nine months, you would have gradually captured the stock market in the progressive pattern. More aggressive investor ideally top up and double SIP instalments over the next six months. If you are already have an SIP and if you can double the instalment for next six months, you will be making the rupee cost averaging to work in your favour. So if you are convinced about rupee cost averaging, then go and do what the SIP is doing even more now.

In any market, like in a cricket match, you need to sometimes go back foot and sometimes you need to go front foot. For a genuine long-term investor, is it the time to go front foot? But there is a view in the market that in March there have been mass cancelation of SIPs. Is that true? What has been the update at Sundaram’s end?
Two things here. I do not think it has been a mass cancelation. What has happened is new SIP registrations have dropped. A lot of three-year SIPs matured in March. One-year SIPs which matured in March have not got renewed. The reason for this is that the lockdown has made sure that the distributor, who has to see the bank relationship manager, is unable to go and reach out to new customers to convince them about SIPs and talk to their existing customers to sign a fresh form and start a new SIP. It is more about the practicality of the lockdown rather than any panic situation.

At Sundaram, our month-on-month net new cash has actually increased 20 per cent, and SIP flows are stable. I do not see this as an industry-wide phenomenon. Definitely new SIP registrations will be on a slowdown and old SIPs maturing will not get renewed so fast, purely because of the technicality. So not many people have gone completely digital and new customers cannot go digital straight as the KYC process still has to be completed physically. So these are the practicalities, which are impacting the SIP flow situation. Having said that I do not see investors panicking at all, not yet at least. It is the lockdown which is hurting more economically, rather than the Covid. It has been a very severe lockdown, so if physical movement is completely stopped, everything has to be done online through banks and net, it is not an easy world to operate in.