Global headwinds to bring Indian markets down: Andrew Holland, Ambit Capital Ltd
In an interview with ET Now, Andrew Holland , CEO-Investment Advisory, Ambit Capital Ltd, gives his views on the market and the domestic macro picture. Excerpts:
What do you make of the positive momentum that we have in the global markets today? Sustainable do you think at that end and would that have a rub-off effect on our markets as well?
I do not think it will be sustainable. I do not think the problems in the US are going away. They might have some direction on the debt ceiling, but that was already expected. The markets went up yesterday with very little volume in the US. So I am not overly convinced. The US economy is slowing quite quickly.
Many leading brokers have now started to reduce the economic forecasts quite considerably and said that the risk is still at downside. So I still think there is more pain to come to the US. In the European Union, we have got some meetings with the ECB tomorrow, which will be crucial there. But you cannot keep kicking this count down the road and that's what the markets are saying. So it is going to be a volatile a few days ahead of us, but the markets will go down from here.
What's your view on the domestic macro picture? In terms of what is the market pricing in as to what the RBI may do in terms of the next policy action? Is it still a fear or a risk in terms of the market or is the 25 bps hike, which the street is expecting already priced in? How is the market viewing this big event?
It is very much priced in. We have to look further beyond the credit policy now and think where the economy is going to be in terms of inflation. Our view remains that at some point there will be demand destruction from the high oil prices.
We saw a sell off a few months back and the oil prices have been creeping back. So until you see that and lower commodity prices globally, the inflation probably will keep there and keep the markets preoccupied by that. Our view is more constructive in terms of being more positive that commodity prices will fall as the US slows and the Eurozone really continues to have its problems and China slows as well. So that's the backdrop which we have been more in a positive towards India going into the second half, but in the very short term, there are too many global headwinds there which should bring our markets down.
I certainly would not be chasing this market at this stage. So the event next week and some of the heavyweights results next week, I do not think will surprise the market. But obviously the RBI now has to stop being careful because the economy will start to slow quite quickly and it is really the trade off between slowing growth and inflation expectations.
At the moment they are in that Catch-22 where unfortunately commodity prices, particularly oil, remain quite high and that's really going to keep them more towards with the rate hikes in the very short term. So I do not think we are over with the rate hikes, have to see some real movement in commodities, which I am expecting, but it is just not coming through at the moment. So the markets had originally got moved towards the high end of its range, but we are pretty much capped now where we are.
Even in sectors, which have not really seen any kind of a bullish signal, would you still wait for lower levels to come in?
We are going to get that opportunity in the next few weeks, that's for sure. Fortunately the results season does help you in terms of weeding out the better companies in each of the sectors. But if you have got something like Crompton Greaves yesterday where you have seen earnings to be lowered by a minimal of 20-25%, you can see why the stock price continues to fall.
So in that respect, I do not think the market has given you any extra points even for slightly beating the kind of expectations. If you are below, then the stock will continue to come under a lot of pressure and that's what's going to happen next week. Some of the heavyweights next week starting with Reliance are not going to please the market.
What's the view on the entire rate sensitive lot, autos and banks in particular, and whether there are pockets that you would now start buying into?
The banks and autos have had a pretty reasonable run actually over the past month. I would not be chased in at these levels, but these are the sectors that we have been buying ahead of expectations that commodity prices would be a lot lower by the end of August. And you got that play, which I have talked about before where there is a shift from emerging markets towards India and China as the interest rate cycle comes to a peak.
So I am still of that view. I just think that in very short term and I am talking over the next week or so, it is going to be quite volatile and our markets along with global markets will actually go down rather than up from here.
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