 "Nifty can hit 10,000 levels by December-end: Andrew Holland")
Global equity markets breathed a sigh of relief on Friday after the US Federal Reserve stood pat as regards interest rates. Andrew Holland, chief executive officer- investment advisory, Ambit Capital, tells Puneet Wadhwa that the development will reduce volatility and bring back a risk-on phase in the markets. He expects the Indian markets to outperform Asian peers. Edited excerpts:
What are your key takeaways from the US Fed's statement on interest rates and outlook for the economy? Do you think that the lift-off could be deferred to 2016?
The lift-off in rates by the US Fed will still be in October or December. After the US Fed's meeting, I am not too worried about the lift-off in rates. The good news is volatility will now be taken out of the market. People are now going to stop talking about interest rates and when the US Fed will hike rates. I think the risk trade will now get back on.
Is there a possibility that yuan could be devalued further? What are the likely implications of this for the global financial markets?
The recent moves by the Chinese authorities suggest the currency might not be devalued more. The move on dividend tax is also a sentiment booster. Now, what is needed are fiscal measures to get people spend more and get the economy back on track. And, I think the fiscal stimulus in China should be coming through. If that happens, the global markets will be less volatile.
But do you think the rally seen across Asian markets, especially India, will sustain?
I can't say about the rest of Asia but certainly for India we have got a policy review at the end of September, where we could see a reduction in interest rates. If we have a less volatile market, which is what I think we are going to get, then the risk-on trade will come back. This will push the Indian markets higher. I think India can really outperform the Asian markets, going ahead.
This is the first time the US has acknowledged slowdown in China as one of the key factors while reviewing its stance on interest rates. How do you interpret this?
Well, they haven't said China specifically. Having said that, one must go back a few years when the taper tantrums were happening. The taper was supposed to happen in September but then we had the currency crisis globally, which even impacted India. So, then the US held back, citing market volatility and the markets breathed a sigh of relief. This time, however, the Wold Bank and the International Monetary Fund were asking the Fed not to raise rates this time. And that's what it is. But then the Fed eventually came back and did what they had to do.
How does India look as an investment destination amid all this? Do you see the pace of foreign institutional inflows slowing in the second half of 2015 or could we see a repeat of August?
The pace of FII (foreign institutional investors) flows will take some more time to gather momentum. No one is going to rush back to buy BRIC (Brazil, Russia, India and China), since we have Brazil, Russia and China here that are seen as problem areas. Flows to India maybe through the emerging markets where fund flow might see some uptick now. This time around, instead of buying emerging market funds, the flows into India will be more direct. This will take a little bit of time, but I suspect that is what is going to happen.
So, where does it take the Nifty to, say by December 2015 - end? What are your sector and stock preferences?
I still believe the Nifty will touch the 10,000-mark by December 2015-end. I haven't changed the targets yet. The ones that will lead the market higher will be the banking sector, Reliance Industries and Maruti Suzuki.
But in terms of RIL, isn’t it a big risk given that the company’s plans of foraying into telecom with Reliance Jio?
On the contrary, it is great that they are launching. This will be the end of the capex cycle for RIL and they will be generating a lot of cash going ahead. This is a new way of looking at RIL, which people have forgotten about. All people remember is that RIL is all about refining and petrochemicals, and all the cash is being deployed in retail and the telecom ventures. I think this will be a catalyst for RIL’s share price.
Would you advise investing in the markets at the current levels then or should one be a fence-sitter till there is more clarity?
I cannot generalise this. There are two possible scenarios. First: someone waits on the side-line for now and takes the plunge when the markets rise another 2%. Second: Investors identify stocks that they like and instead of putting all the money in, they stagger their investment, buy on declines and average it out.
What are your key takeaways from the US Fed's statement on interest rates and outlook for the economy? Do you think that the lift-off could be deferred to 2016?
The lift-off in rates by the US Fed will still be in October or December. After the US Fed's meeting, I am not too worried about the lift-off in rates. The good news is volatility will now be taken out of the market. People are now going to stop talking about interest rates and when the US Fed will hike rates. I think the risk trade will now get back on.
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The recent moves by the Chinese authorities suggest the currency might not be devalued more. The move on dividend tax is also a sentiment booster. Now, what is needed are fiscal measures to get people spend more and get the economy back on track. And, I think the fiscal stimulus in China should be coming through. If that happens, the global markets will be less volatile.
But do you think the rally seen across Asian markets, especially India, will sustain?
I can't say about the rest of Asia but certainly for India we have got a policy review at the end of September, where we could see a reduction in interest rates. If we have a less volatile market, which is what I think we are going to get, then the risk-on trade will come back. This will push the Indian markets higher. I think India can really outperform the Asian markets, going ahead.
This is the first time the US has acknowledged slowdown in China as one of the key factors while reviewing its stance on interest rates. How do you interpret this?
Well, they haven't said China specifically. Having said that, one must go back a few years when the taper tantrums were happening. The taper was supposed to happen in September but then we had the currency crisis globally, which even impacted India. So, then the US held back, citing market volatility and the markets breathed a sigh of relief. This time, however, the Wold Bank and the International Monetary Fund were asking the Fed not to raise rates this time. And that's what it is. But then the Fed eventually came back and did what they had to do.
How does India look as an investment destination amid all this? Do you see the pace of foreign institutional inflows slowing in the second half of 2015 or could we see a repeat of August?
The pace of FII (foreign institutional investors) flows will take some more time to gather momentum. No one is going to rush back to buy BRIC (Brazil, Russia, India and China), since we have Brazil, Russia and China here that are seen as problem areas. Flows to India maybe through the emerging markets where fund flow might see some uptick now. This time around, instead of buying emerging market funds, the flows into India will be more direct. This will take a little bit of time, but I suspect that is what is going to happen.
So, where does it take the Nifty to, say by December 2015 - end? What are your sector and stock preferences?
I still believe the Nifty will touch the 10,000-mark by December 2015-end. I haven't changed the targets yet. The ones that will lead the market higher will be the banking sector, Reliance Industries and Maruti Suzuki.
But in terms of RIL, isn’t it a big risk given that the company’s plans of foraying into telecom with Reliance Jio?
On the contrary, it is great that they are launching. This will be the end of the capex cycle for RIL and they will be generating a lot of cash going ahead. This is a new way of looking at RIL, which people have forgotten about. All people remember is that RIL is all about refining and petrochemicals, and all the cash is being deployed in retail and the telecom ventures. I think this will be a catalyst for RIL’s share price.
Would you advise investing in the markets at the current levels then or should one be a fence-sitter till there is more clarity?
I cannot generalise this. There are two possible scenarios. First: someone waits on the side-line for now and takes the plunge when the markets rise another 2%. Second: Investors identify stocks that they like and instead of putting all the money in, they stagger their investment, buy on declines and average it out.