May 17, 2013, 04.41 PM IST
Andrew Holland, CEO, Ambit Investment Advisors, said that inflows seen coming into the Indian equity market are primarily ETF driven and ETF inflows could reverse quickly.
Andrew Holland, CEO, Ambit Investment Advisors feels markets' complacency with respect to this global liquidity driven rally is scaring because they have been ignoring bad news from Europe. Also, this rally is not resulting into any earnings growth.
"Nothing has really changed in India, so I need to move from defensives in my long side of the portfolio to more kind of interest rate sensitives or companies with high debt," he said in an interview to CNBC-TV18. He sees 5500 as bottom for the Nifty.
Continuing his bearish stance, Holland added that inflows seen coming into the Indian equity market are primarily ETF driven and ETF inflows could reverse quickly.
He also pointed out that the bond markets have started to show sings on fatigue.
Meanwhile, unlike many experts, he doesn't see the Reserve Bank of India obliging the market with a rate cut in June despite the fall seen April inflation data. However, a rate cut in July is likely, Andrew added.
Below is the edited transcript of Holland's interview to CNBC-TV18.
Q: Are you a bit surprised with the way things have turned out in May globally and locally?
A: I am always surprised with liquidity driven markets. I am surprised how valuations can get stretched not just for India but globally too. I saw a report yesterday saying in 40 years it is one of the biggest rises globally with very little or no earnings growth.
So, it is all about liquidity. Until that party stops, we will just have to keep with the momentum. We know that we will stop at some stage. How bad would that be? We would have to wait and see. It is just liquidity right now, there is no driving factor in the India really on the fundamental side.
Q: Tactically though, is it best to ride with this or are you guys stepping off this rally?
A: What will keep renting these high beta, poor management banking stocks and anything that’s kind of got the momentum? One is wary about what could happen globally. Nothing has really changed in India and that’s what’s keeping me from saying that I need to move from defensives in my long side of the portfolio to more interest rate sensitives or companies with high debt. So, I don’t mind renting them but I am not going to own them and that’s the key for me at the moment.
A: At the moment, the complacency is there because good news is seen as great news and bad news is seen as good news. A few days ago, France came out and declared it is into recession for the third time. We quickly just wrote that off and believed that the European Union will just throw more money at it. That is what everyone is expecting.
Everyone has come back to central banks. When one has got every, virtually every central bank from Australia through to Turkey reducing interest rates, trying to get the currency to depreciate, something will give it some stage. It is going to be in the bond markets somewhere.
We saw bond yields rise very quickly in the US. So, we are all looking at how Bernanke will manoeuvre US into higher interest rate regime going forward. I don’t think I have seen that happen without problems before. If one goes back to think about China two years ago, I remember I was talking about how it is going to be a soft landing with no problems and the world will continue to grow and that’s not been the case. So, I think we are seeing it all with just too high, rose tinted glasses with respect to the liquidity but something will snap and when it does, as we saw with gold recently which again was a favourite commodity for people to have, the fall could be quite sharp.
Q: What’s making India stand out though in this entire liquidity run because any amount of data that shows India is actually pulling more money than the rest of the region, India and Taiwan in that order in the last couple of months. Why is India getting the bulk of it and what is the source or nature of it you think?
A: I think its exchange traded funds (ETF) in particular. I think it’s a shift within global funds towards India. If one just looks at some of the competing markets like Brazil and Russia, obviously they are going to be affected by lower commodity prices and those markets are down year-to-date despite the global rally.
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