Veteran fund manager Sunil Subramaniam expects a sideways move in the market, which he says has "already discounted the future". There could be some selling by foreign portfolio investors in the large cap space from the future perspective, he told CNBC-TV18.

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"What could happen is some amount of rejigging of small caps, which have risen a lot, and redeploying that into large caps," said Subramaniam, Managing Director and CEO of Sundaram Mutual Fund, which has more than Rs 40,000 crore in assets under management.

Broader markets have sharply outperformed the headline indices in recent times. On a year-to-date (YTD) basis, the Nifty Midcap 100 and Smallcap 100 gauges have risen as 32 percent and 43 percent respectively, much higher than headline index Nifty50's 18 percent return.

Midcap and smallcap stocks were in focus last week after stock exchange BSE introduced rules aimed at curbing excessive movement in the segment. The bourse, however, later clarified that the action applied on select stocks, giving a sigh of relief to market participants.

Also read: BSE clarifies on price band circular

On India's economic growth, he said the market has factored in a V-shaped recovery.

"Now the next is to actually wait for the festival season, to see if the third wave has an impact, and to see if the Reserve Bank of India continues with its 'accommodative' stance of monetary policy," said Subramaniam, who expects consumer durables and discretionaries to rise in the upcoming festive season.

But more importantly, he said, the market is rising is because it has started to shift its focus to FY22-23 earnings.

"The market is actually saying that the third wave (of the pandemic) will not damage the economy as much because progress on the vaccination front is very good," the fund manager said.

Also read: Saurabh Mukherjea says TCS, Infosys better plays vs midcap IT

By December, by which we would have about 65-70 percent of our population vaccinated, will bring down the impact of the pandemic, he added.

Subramaniam is bullish on export-oriented stocks and said he would look at allocating funds into them.

Also read: Morgan Stanley selective on midcap IT; overweight on Mphasis, Mindtree

"I would look at an allocation into the export-oriented sectors. IT is obviously on the top of the pack... and to some extent pharma; chemicals are the new thing. The third is on the electronics front," he said.

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