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Last Updated:[19-11-2012 08:37:49 EDT] Zoom in Zoom out Back to Tradenews

China revival key for global markets to move higher: Andrew Holland, Ambit Capital

tradenews In an interview with ET Now, Andrew Holland, CEO-Investment Advisory, Ambit Capital Ltd, gives his views on the Indian markets and talks about the impact of China's new leadership on global markets. Excerpts:

ET Now: Are you with the consensus that the worst is behind Bharti or you still maintain a view that in the near term, it is too early to start celebrating?

Andrew Holland: I am not quite sure what to celebrate. The regulatory involvement there serves as a bit of relief rally. The worst has not happened and that is good news. But it is still an industry which is embroiled, as I said, in regulatory kind of interference and I do not see this going away.

Also, competition obviously is not coming in, but I do not think that is going to be the case if you change the environment in India and people can see a roadmap, which we are all hoping will see over the next six months where growth can start to kick in again.

This could change everything. So I am not on board. Bharti has always been the favourite anyway, but I really do not quite understand this sector, so to say I want to buy it at this stage. I would rather wait a bit longer and see how the dust settles.

ET Now: What about the big picture? Indian markets are down six days on the trot, foreign institutional investors have turned net sellers, and globally most of the risk on indicators are not favourable. Do you think Indian markets have topped out for the year?

Andrew Holland: We believe after the events of August and September, 5700 on the Nifty in the near term was probably seeing a peak. And the move that would actually stir the markets higher towards the end of the year is going to come from China with the new leadership there.

If they just talk growth, investors globally will start to think that with China growing again or expectations of it growing again would help the global economy and that would be very positive and lead to kind of a rush towards year-end performance. So that is the key I am looking for.

Obviously everyone is focussed on the US fiscal cliff and some of the noise is coming out. We are a bit more positive and I remain optimistic that we will see some form of agreement before the deadline at the end of year, because if not, then obviously the politicians have really taken the US into recession and I do not think that is what anyone wants at this stage.

So China is the key for global markets to move higher. Locally here as you know we got the Parliament opening later this week and that is going to be the focus of attention and that could lead to a bit more volatility, but around these levels on one year view we are starting to nibble away and start buying.

ET Now: What is your view on names like Tata Global Beverages and does it seem like now with upside already done in the stock and also some question marks being raised about how profitable the joint venture with Starbucks is going to pan out, perhaps it would be time now to start booking profits in this one?

Andrew Holland: Yes, it has had a great run and obviously you could see some profit taking, but you got to look a little bit further ahead than just Starbucks opening two stores in Mumbai.

You need to see the kind of long-term value that that could bring to Tata Global Beverages and also the fact that the coffee prices are lower. So that would boost earnings in their companies in the US. So, I do not think you can just say with two stores opening that there is no value in this stock. Hence it does not work for me.

ET Now: What is the expectation from the Reserve Bank of India because inflation has eased out as we saw last week, but does it seem like they could pre-empt their rate cut decision or do you think we will have to wait till January for that?

Andrew Holland: The RBI governor has managed to keep his cards under cover in a surprised factor in terms of what he is going to do. Whether the finance minister has to walk this path alone, I am not quite sure, but the RBI has to come in at some stage and help to boost the economy and confidence.

So whether it is now or January, the markets would take a view of this very soon. I am more optimistic that we will see the RBI walking the path along with the finance minister sooner than later.

ET Now: But have our equity markets already priced taken some monetary easing?

Andrew Holland: It has done and to know where India is going to be in one year's time, looking at a very short period of time, say this month, we have to analyse RBI's next move.

If RBI does act and they are positive in their kind of words that they gave out to India Inc, then it is really the confidence of India which is going to be driving the growth of GDP and therefore you will start to see earnings upgrade.

So it is a positive and very exciting cocktail of interest rates coming down and corporate confidence rising and that is what you would see towards the second half of 2013.

Then you are going to start to see analysts upgrade for that year and year beyond and that is what the markets will start to factor in. We will be talking about different scenario in terms of the earnings growth for India and that is what will be driving the markets.

Our one year view is that the markets will continue to follow earnings growth and we are looking at between 10% and 15% earnings growth next year. So we expect the Sensex and the Nifty to be that much higher as well.

ET Now: The year gone by will be remembered when markets focussed on good quality companies, investors invested in stocks or in companies which have a predictable cash flow and a strong return on equity. Do you think the Samvat 2068 trade will continue this year as well?

Andrew Holland: I think it will. We have not made that big switch from defensives i.e. FMCG, pharmaceuticals into the kind of high beta questionable management and high debt companies yet.

We think there is only kind of rally which is liquidity driven and these high beta stocks are great to rent, but not to buy.

There is still a lot of reshaping of the balance sheets to be done. A lot of people will say that these are going to be the multibaggers and maybe they will going forward, but I want to wait till I see enough evidence of the management going to realign the business, corporate governance and get the debt down before I need to start buying them.

So between now and first half of the year, I would probably be renting these stocks rather than buying. But there will be opportunities like a DLF in real estate which are trying to reduce their debt through land sales and move out of some of the joint ventures which makes it a longer-term compelling story.

But would I want to buy DLF and hold it right now? Well, I can rent it and I do not need to be so quick in adding this to portfolio. So defensives will continue to give some good performance, but start looking down and start picking your stocks in the winners going into the new year.

ET Now: So give us some names wherein you are bullish even at the current level and think that there is significant upside in the short as well as in the medium term.

Andrew Holland: We like the interest rate sensitives, but we have been very selective. So we like Bajaj Auto in the two wheeler space, we like Maruti Suzuki for the new product launches it is coming up with.

But given what is happening in Japan with the potential change in government would probably mean a weaker yen going forward and that is good for Maruti Suzuki. So all of these things will add up to the bottom-line profitability.

Hopefully the problems at the plant are well behind them. These are kind of companies where you are going to get some strong returns.

Source : Economic Times

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