Andrew Holland, chief executive officer (investment advisory) at Mumbai-based Ambit Capital says the government has to take bold economic actions, such as opening up the multi-brand retail sector for foreign investment to spur growth. In an interview with Palak Shah, he says, any dramatic event in Europe could bring out the worst. Edited excerpts:
There is too much pessimism in the market. What is your call?
My overall view on market is that this year still remains surprising enough. Last year, we saw the benchmark Sensex fall 20 per cent. This year, I see the reverse happening. It has been volatile so far, but the markets will be up by the end of the year, compared to 2011. It could be two or eight per cent — I don’t know. But you will see a rally from the low levels, which will mean the markets will end higher. I’m not trying to say what the level could be, as there are too many events and uncertainties. In the worst-case scenario, the 50-share index Nifty could fall to 4,000.
What is the worst-case scenario?
India’s gross domestic product (GDP) growth rate of 5.3 per cent (for the March quarter) has been a shocker. Till now, the markets had fallen heavily as liquidity was the issue. But the falling GDP shows problems are deep enough. The government has to do something about the oil subsidy. You will have to re-tell the India story. It is a broken picture now. Most corporates are sitting on cash and nobody is confident of investing in this scenario.
The government has to take at least three to four major policy decisions, like allowing foreign direct investment (FDI) in retail, help companies in land acquisition, solve the power crises and so on. Nobody is believing in the statements from politicians. They want to see action, which is not happening.
Amid this, any dramatic event in Europe could bring out the worst. People are of the view that all countries in Europe should go back to their own currencies. That is a bit radical and I don’t know what extreme could happen in such a scenario. The Greek currency can crash by 50-60 per cent. It could be like the 1930s-1940s, when the US and the UK moved to the gold standard, causing a lot of pain to markets initially.
How are you playing the market, considering the various global and domestic events?
We are playing the market on a very short-term basis, but protecting capital as much as we can by being defensive and ready with cash.
In our fund, we have quite a bit of cash ready to go into the markets under the scenarios that I mentioned and we are just waiting for sign posts. In January, the sign post was ECB’s (European Central Bank) trillion dollar LTRO (long-term refinancing operations). Those are the things we would look for from Europe.
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Towards the end of this year, there is the US Presidential election and I’m sure that the debt ceiling in the US will be raised. So, that would be another sign post. In India, we will look for policy reforms.
Currently, we are pretty much defensive. We have invested in pharma, consumer durables and a little bit in autos and capital goods sector. In our long short fund, we got some very high beta shorts to hedge the long side of the fund. And, we have been very active as markets are changing very fast.
There are hopes of a third round of quantitative easing by the US Federal Reserve? Where do you see the rupee stabilising against the dollar?
QE3 (qualitative easing) is definitely not happening. Recent data from the US have shown weakness. People continue to de-leverage. The US has already pumped in $1.5 to $ 2 trillion into the economy since 2008, but not much has changed. So, by previous QEs, the US just subsidised things and pushed the wrong kind of growth. It has hurt emerging markets badly. Brazil today is in a similar position like India. Economic figures in China, too, were quite bad.
So, it’s not just India where things are all bad. In fact, in India, markets are still up in rupee terms year-to-date and FIIs (foreign institutional investors) have hardly sold. In 2010, we had $24 billion come in, 2011 we had $ 1.5 billion dollars go out and this year so far we have about $6-7 billion come in. So, the FIIs haven’t really moved out. At this point in time everybody is just waiting. A call to enter the markets will be taken by most in the next 15-17 days after few events in Europe and India.
Currently, I don’t see any one jumping into India on the basis that things are going to be okay or the current gloomy scenario will change. There are other places to play in the markets and there are markets cheaper than India. Given the country’s political scenario, you only want to wait for things to stabilise.
