2 weeks Ago
Andrew Holland , CEO, Avendus Capital Public Markets Alternate Strategies LLP , says we might get relative outperformance but at this point, just keeping your powder dry is probably the best thing to do until some of the scenarios play out after Trump assumes office. Hospitality, and traveling will be a key feature at least for next year or so. The airlines look okay.
Some kind of premiumisation is happening in pockets and alcoholic and non-alcoholic drinks are the place to be there. Finally, electronic manufacturing (EMS) is a great area to be in the long term. Those three themes are in play, but if markets go down, then these stocks will go down as well.
What is spooking the global markets right now? Do you think the excesses of the Trump rally are getting shaken off a little? Andrew Holland: Yes, you are bound to see a little bit of slowdown in the index after its rise but one thing that has clearly happened is that all the attention and all the focus is now on the US and that is what we have seen in terms of the markets not just the equity market, but obviously the currency and to some extent crypto as well. I do not see that stopping. I think that is going to be the kind of theme as Trump puts together his administration and America first kind of comes out of this.
So, the bad news is that for emerging markets, any kind of passive flows which might have come, are going to be directed towards developed markets, particularly the US. So, there are too many uncertainties for emerging markets up until after the 20th of January. Of course, tariff is one of them but really what can countries do about it? The Chinese are already depreciating their currency, and that is going to have knock-on effects for other emerging market currencies including ours.
All the things that are being held there are unfolding and one of the things that we were hoping for when we talked about this before was that interest rate regime might trickle through to India but again with thoughts about tariffs possibly in increasing inflation the short term, the Fed may go and hold in December which means that the expectation that we had of a rate cut here might be pushed well into 2025 which is not great for our markets and particularly the kind of financials. Those tailwinds have been taken away from us and the earning season has been particularly poor. But what is more concerning is that both the revenue line and margins across sectors have taken a beating and I am not sure how they are going to improve from here in the very short term.
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I do not think it is any bank in particular. It is the whole sector given that the headwinds in terms of rates might not be reduced as quickly and the slowing economy does not bode well for the banking sector given the problems they have with interest margins as well. So, it is just not an easy place to hide at the moment in the Indian market.
Are you asking to stay away from bank stocks, not to invest in them at the moment? Andrew Holland: If I am a retail investor, I would just take whatever I would have and sit on the sidelines with some cash and wait. A lot of news flows is going to happen over the next one month and it is worth waiting to see how some of that might play out because for all that we talked about, about tariffs, personal tax rate reductions, and corporate rate reductions in the US, we still have to wait for President Trump to take office and things might not be turn out the way that everyone is expecting at the moment. So, it is worth sitting on the sidelines a little bit and just say I can wait through this and deploy as soon as I see what is happening in terms of some of those policies playing out and how likely that is going to affect India in the short term, not necessarily from an economic viewpoint but more so from a flow to emerging markets viewpoint.
You Might Also Like: How quant-based investment strategies can deliver superior returns amid high market volatility I am curious to know what would you be deploying that cash for whenever the next wave of the dip comes in the market in the next month or so? Anything that is looking interesting or emerging as a winner after the recent spate of correction in the market? Andrew Holland: It is not as though there are no winners going forward but when valuations are still as high, everything gets tarred with the same brush no matter which sector. So we might get relative outperformance but at this point I would say that just keeping your powder dry is probably the best thing to do until some of these scenarios play out. For example, as and when Trump gets in, if he brokers a deal in the Middle East and Russia-Ukraine, that would probably mean the oil price would fall but would then countries be so adamant in terms of increasing their defence spending? So a lot of these things are unknown and it is just worth just sitting there and waiting for whatever is going to happen and then take a view.
What about the consumption sector? The earning season clearly has not been good but the commentary regarding the second half also has not been that optimistic. YTD, Tata Consumer is down 11%, Dabur is down 8%, HUL is down 8%, Britannia is down 5%. Is it time to buy some of these stocks as they get closer to the bottom or is a couple quarters of pain left? Andrew Holland: I would say that this is a trend which we are going to see across all sectors because I am just not seeing the catalyst for earnings to move higher.
If I think about government spending, I will come back to FMCG, but government spending really has to take off as well as private capex, which is just not happening and that has a multiplier effect across different industries and the economy. But as regards FMCG, the commentary is poor. They are saying urban consumption is starting to slow and there is not enough pickup in the rural economy for that to make up the difference.
Volumes are not there, margins are under pressure, and that will continue. So, there is nowhere to hide at the moment. You Might Also Like: Checklist: Mark Mobius on 5 factors he looks for while buying stocks I mean, IT is one place which is doing well, but that is really again on the back of what is going to happen globally.
If the US cuts corporate tax, then that is a kicker for the IT sector as that is where the narrative is at the moment. Otherwise, for the rest of the sectors, it is more concentrated in India which most of them are. It is going to be tough work to get the volumes and margins higher from this point on.
So, sitting on the sidelines is not a bad thing to do. These ratings anyway were very high and there is probably more PE compression to come until earnings start picking up, not just for FMCG, but also for other sectors. So, look closely at where the growth is going to come from.
I still think hospitality, and traveling will be a key feature at least for next year or so and not a lot of supply is coming in the hotel sector. The airlines look okay. Some kind of premiumisation is happening in pockets.
So, alcoholic and non-alcoholic drinks are the place to be there. Finally, there is electronic manufacturing (EMS). If India is going to do that China plus one, then EMS is a great area to be in the long term.
So, those are three themes in playing, but if markets go down, then these stocks go down with them. (You can now subscribe to our ETMarkets WhatsApp channel ).
