If India does not focus on fundamental issues then it will continue to see only relief rallies on global events, but the problems plaguing the markets and the economy will remain, says Andrew Holland, CEO - Equities, Ambit Capital.
He would ideally want bond markets opened up completely, bring down interest rates and increase the diesel price by Rs 10, this would be the confidence that foreign investors would like. Though it would hurt short-term GDP growth, and may even lead to rupee reversing its recent gains and heading back towards 70/USD, which is where the currency is heading anyway, he says. "So abandon that, get growth going again and you will get a V-shaped recovery," he adds.
In terms of specific sectors, he is hiding in IT and says there are plenty of stocks to short, which includes all banking stocks whether private or PSU.
Below is the verbatim transcript of Andrew Holland's interview on CNBC-TV18
Q: What is your gut telling you that emerging markets including India have run up significantly ahead of this event and that it would be a good profit taking time or do you think this could surprise us all and we could stay in this 5800 plus for a goodish bit?
A: It is very difficult to second guess what the Federal Reserve (Fed) would do. We have always been in the camp of USD 5-10 billion of tapering but you have to go through all these press conferences and what you think about interest rates in 2016 before we get real good view of what he is thinking. What I really think is this is not just a one of event which we can then sit back and do nothing about. Unless we say the US is going to take a double dip in terms of growth and for sure over the next year as well 2014 we are going to see rates harden in the US towards 3 percent plus. And that means a stronger dollar and probably a stronger oil price.
So we might get that relief, I think it has probably played out already in terms of expectations but you have to look a little bit ahead and say what is going to happen. So whilst it might be a rally in terms of what they don't do in terms of tightening, we got to look back at India and say what is India going to do? Because the alarm bells were wound on May 22 that India could not continue to do what it is doing and run twin deficits. And really since then a part of tinkering by the new RBI governor is being really helped out or buoyed by global events rather than local events.
So foreign investors who look at India want to see some real change now and if they don't see that I think the markets out there which are doing right things and particularly Europe where they could easily go to over EMs. So India has to as US is doing the same, we are going to do what is right for us. India has to do what is right for us and unless that happens then all you are going to get is relief rallies on global events but your underlying fundamental problems remain.
Q: Now after getting the inflation data it seems like the hands are really tight of the RBI governor in this credit policy at least. What is your expectation from the September 20 event?
A: I see lots of reports coming out now saying that there is nothing really, no real big bang or no real change. I think financial reforms is something he is going to do. If it was my wish I would say open up the bond market completely, bring down interest rates and increase the diesel price anywhere towards Rs 10 and that would be the confidence that foreign investors would like. Yes it would hurt in the short-term in terms of GDP growth, might even hurt the currency reversing its recent gains and heading back towards 70/USD but it is heading there anyway. So abandon that, get growth going again and you will get a V shaped recovery.
But if we just muddle along the sidelines I don't think that is going to help the economy, corporates, banking sector or any sector in particular. And that is what we are seeing in the market at the moment that after the recent rally in banks they are starting to falter again. The problems haven't gone away just because you have had a global rally in emerging markets. Remember it is not an India rally, this is a global EMs rally because of hopes that Fed tapering would be less and also the oil price because of Syria has come down. So those are risk on trade played out in all markets.
Q: As an investor would you advise postponing your investment decisions and the fact that you would get better and lower levels in this market through the course of the end of the year?
A: When it comes to a big event you have very high conviction or knowledge which the market doesn’t in terms of what is going to happen. And therefore it is better just to wait till those decisions or expectations are being played out. If you miss the first 1-2 percent on the upside or downside it is okay, if the trend is going to be significantly higher or lower you are not going to lose out on that. So that is what we are doing at the moment, we are hiding in IT in terms of being on the long side but there are plenty of stocks out there to short as and when the market comes down and that would include all the banking stocks whether it is private or PSU.