Fundamentals continue to be extremely weak; need for consolidation and some price correction: IV Subramaniam

In a chat with ET Now, IV Subramaniam, MD & CIO, Quantum Advisors, Director, Quantum shares his views on the market.

ET Now: What do you make of the price action in the month of May?

IV Subramaniam: You need to be judicious at all points in time. There has been a euphoria built-in in the last few days ahead of the elections and post the elections with the single party government.

A lot of stocks have gone up and many of them definitely do not deserve to go up because the fundamentals continue to be extremely weak. Not only have the large caps gone up, but there are newer small cap and midcap companies which have suspect business and have gone up very rapidly.

There is a need to consolidate and for some price correction to happen before the valuations would start to look attractive.

ET Now: Does it seem like this could be a long drawn patch of consolidation or profit taking that the markets could be headed in or do you see this only as a near term phenomena?

IV Subramaniam: It is very difficult to say whether it will be a near-term phenomena. There has been a huge amount of inflow which has come into the markets largely from FIIs. Many of them may not be real long term players.

At the end of the day, they will look at relative yields after the stock prices have run up so much. If the returns do not look very promising, the correction could be very rapid. Therefore, the consolidation could be very rapid and things could decline much faster than people anticipated.

Long drawn, it will be a more short term event. As the budget and policies are announced, slowly the economy starts to look better, the money flow would also come back into the markets. The next 100 days will be crucial.