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All eyes on how new FM plans to deliver growth going forward: Andrew Holland

We will all be watching and listening to every word Finance ..

We will all be watching and listening to every word Finance Minister Nirmala Sitharaman says on how she is going to get the economy back on growth rate above 6%, said Andrew Holland, CEO, Avendus Capital Alternate Strategies, in an interview with ETNOW.

Edited excerpts:

It is a little surprising to see that irrespective of how bleak the auto sales have been, these stocks have actually been seeing buying today. Do you think this is genuine bottom fishing going on here?
It is probably a little bit of short covering if anything. It has been a beaten down sector for some time now and the market is hoping that things would get better from here. I am afraid that it is not going to be the case and we expect more downgrades for the auto stocks in very near future. But they have been beaten down and so there is a little bit of hope value there with a short covering but nothing more than that.

What about the overall market? We are staring at all-time highs. The rate is indicating 12,055. You have got the Sensex up good 400 points at 40,000. The breadth is not really favouring us and the broader end of the market is not quite playing catch up. It does not quite feel like a bull market?
The GDP figures were shockingly bad and whilst the market can shrug that off, it did so because of three reasons. One, the expectations now is that RBI will have to cut rates and expectations will probably move from 25 to 50 bps. Two. the new finance minister will have to talk about how she is going to deliver the growth going forward and a pickup in GDP growth. Three, oil price being where it is and indicating lower levels going forward, is a nice fillip in a difficult global market.

Those are the three factors we have bought into today and those will continue till we see what the RBI says. But all eyes will be on what the new finance minister says. We will all be watching and listening to every word that she says in terms of how she is going to get the economy back on growth rate which is above 6%.

What would be looking good to you to add to the portfolio right now? What would you be looking at – financials and within financials any particular strategy, anything outside of that?
There are two things. One is that globally and locally, interest rates are going to fall. Our believe is that the US is close to recession. Interest rates will fall there as it will around the world. You are going to have a liquidity driven global rally until we all work out that it is a little bit worse with developed markets and therefore emerging markets do well.

In that backdrop, both the retail and corporate private banks remain top in on our buying list. The interesting area is the PSU banks and again what the new finance minister says will matter. The obvious move would be to recapitalise and then privatise. At least there will be a roadmap and so that is an interesting sector. Would I buy for that? I am not sure I would. I would wait.

Over a longer term if that was to play out, then the PSU banks would be back on my radar, something that I want to own.

What is your take on the paint industry? Is this a space that you would look at?
It really depends on what is the oil price and we do own some of the paint companies. Despite all the cuts that you have seen from OPEC and Russia and everywhere else, the supply side is still more than the demand side which tells you why there is a problem globally in terms of demand.

I feel that the oil price could easily go towards the kind of $50 on NYMEX in the near term because with all the trade wars escalating, growth is slowing very quickly and that is what we are seeing. So, all the cuts in production are still not holding up the oil price. You have already seen oil fall 10% to 15% from the highs and that will give the paint companies the ability to cut prices to get volumes through but also because the margins will be protected to some extent.

What about aviation? We do not yet have a closure on Jet. Indigo is going through its own corporate issues and Spicejet is in the news.
Yes, it is a difficult sector. Even if you just take the period before Jet, the problem was that despite the record number of travellers and occupancy in terms of seats, they all seemed to make no money. It is only because of Jet going out, that everyone has managed to make some money this quarter. That is a tailwind for them. Also the fact that oil prices are coming down is going to be the extra kind of thrust that will move share prices higher.

But you are really buying it on a couple of things. One, because of less competition and lower oil price which is fine. But those things can change if a very strong player took over Jet and everything is back on the table in terms of competing for market share. It is not a sector which we focus too much on but in the very short term, it has everything that is needed to keep the share prices higher.

What is the outlook on the metals basket?
Metals a little bit like oils. We are going towards a global downturn and metals prices will fall from here. You have already seen ArcelorMittal cut production in Europe and that is telling you what is happening in Europe, that prices and demand are going to fall.

If we see that China, Mexico, wherever Trump decides to have a tariff hike or tariff plan, then you know it cannot be good for global growth. So, until all of those resolve there is only going to be pressure on metals and that is going to be downwards rather than anywhere I still think there is another 10% fall in metals prices to happen over the next few weeks.

With the kind of news flow that has been coming in from the US FDA, the checks have been fairly stringent and it has been making investors fairly jittery. The overall valuation picture is a far cry from what one would have expected last year. What are the prospects for pharma going forward?
I do not think you are going to get any better because that profit from generics, years of making very good money is just behind them now and it is not coming back and they have not really changed their business models to adjust for that. It is going to be very painful for them and even with any drugs that they get through the FDA, the margins are going to be a slice of what they used to be.

We only think domestic pharma is probably worth looking at in the present time. But it is just not a sector where you can feel at ease because even they get the manufacturing wrong or like in the US, they can be sued by all the states. So, there is a lot more trouble ahead. Despite the valuations coming down, it is just not compelling enough yet.

Are you also in line with the belief that perhaps we are going to start to see a major uptick on real estate, infra, housing that entire pocket if we start to see those rate cuts coming in?
My view is that the government will kickstart its own expenditure again and that will be good for the infra and capital goods companies. But really what we are going to look out for is the corporate capex cycles to pick up. I expect that to start in the second half of the year. I would stick around in the capital goods and the infra companies as the area to go for.

Real estate still has some way to go in terms of getting confidence back. There is a lot of unsold inventory and some of the housing projects that you see will still take their own sRead More – Source

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