Things are not looking great globally: Andrew Holland

Interview with CEO, Ambit Investment Advisors

The current valuations for Indian equities seem to be pricing in all positives, believes Andrew Holland, chief executive officer (CEO), Ambit Investment Advisors. He tells Ashley Coutinho that while India is well-placed among emerging markets, it is not immune to a risk-off trade globally. Excerpts:

What is your outlook for Indian markets?

We are in a liquidity-driven market and liquidity markets always concern me. Recently, share prices of a bank that reported dismal results, went up the day its results were announced. This is what happens in a liquidity-driven market — bad news becomes good news and good news becomes very good news. While I am not overly bearish on India, things are not looking great globally. The current valuations for Indian equities are at 19 times one-year forward earnings (profit) and seem to be pricing in all the positives. My main concern is that we are not immune to a risk-off trade globally and if there's a major negative newsflow, we can’t stop our markets from falling.

What are the key things to look for this earnings (profit) season?

The earnings have been a bit disappointing to my mind, given the kind of expectations that were being built. The economy may be growing, but the growth has been patchy in certain sectors. The effect of a good monsoon and the seventh pay commission (wage hike suggestion) will take some time to kick in, but I am hoping the earnings growth will pick up in the second half of the year.

Is the global economy out of the woods yet?

Global growth is still struggling. In the past nine years, we have seen central banks resorting to printing money to get growth moving. But there has been little or no growth. All of the austerity we have had across Europe hasn’t helped countries like France, Spain, Italy, and Greece to reduce their debt-to-GDP (gross domestic product) ratio. Despite interest rates being near or below zero, their debt is just not moving down. The market capitalisaition of the banking sector in Europe is similar to the levels last seen in 2008 during the financial crisis. What does that tell you? It is that economies are not growing, companies are not spending, and the monetary policy that we are adopting is not working.

What is the way out?

Unless the central governments start to do some fiscal stimulus, we are going nowhere. Japan has recently announced some fiscal stimulus and I suspect other governments will have to, too. People in the UK, for instance, are sitting on no earnings and no yields on their earnings and, therefore, not spending. The government there needs to resort to some tax cuts, whether it's VAT (value-added tax) or personal tax cuts.

Coming back to India, what are the key positives that you see?

Commodity prices are coming down and that's good news for India as it will help keep the inflation down. The structural changes — the GST (goods and services tax) or the banking licences or the efforts to bring back black (unaccounted) money — are all very good but their impact may take time to kick in.

GST is good but we need to see how its implementation pans out.

How is India placed among emerging markets now?

The story for India has not changed. It's always been seen as one of the better markets because of the reasonable growth, okay earnings and the continuing reforms process. India may also benefit from a possible cut in interest rates in future and lower commodity prices, as mentioned earlier.

Which sectors are you betting on?

I am bullish on pharma as valuations have got to a point where there is value in the sector. We are not favouring oil & metal stocks as commodity prices are expected to go down from here.