Mkts may see sharp upmove after some consolidation: DSP ML

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Andrew Holland of DSP Merrill Lynch said that the markets may see sharp upmove after some consolidation. Holland believes that Indian markets are likely to touch new highs soon.

According to Holland, expectations of lower rates may fuel a global rally.

A couple of markets like China may see some correction.

Excerpts from CNBC-TV18's exclusive interview with Andrew Holland:

Q: What do you put this kind of volatility down to, over the last three sessions?

A: Volatility is a concern of some of the Asian markets, particularly China that's been a concern to the market. But as we came towards the end of the week, we had the elections holding back markets participants, now out of the way. We saw some profit taking last night in the US, after many sessions of being up.

Global markets had a great run fueled by mega bids both in Europe and US, it's going to take a breather. I think all the news coming from US remains positive and India has been trading sideways. I think, we will probably not consolidate and see a fairly sharp move upwards. I am particularly bullish at the moment.    

Q: Is it just a breather for global markets or do you think there is a particular concern weighing heavily on them?

A: The global markets have moved up quite sharply, probably because the figures coming from the US are supporting the soft landing. Fed did not do anything with interest rates last, but the expectation is interest rate will turn down, which will obviously help global markets continue to move higher.

There was a lull in some of the mega bids yesterday, but that doesn't mean we won't see any more in the next few weeks. Global liquidity remains strong and global markets will continue to move ahead, and I think India will do some catching up very shortly.

Q:Do you see, in the near term, Indian markets reaching new highs?

A: I think we will see new highs for the Index over the next few weeks.

Q: Can you put the mega issues of ICICI Bank and DLF in perspective, also, how much of liquidity can they soak up?

A: Without talking about the issues in particular, for quality companies, there'll always be an appetite of foreign investors. Yes, it will probably have a bit of drag on the market in the short-term. But I do see growth in both GDP and earnings for the market, still remaining strong. Corporates are confident about the outlook and we can see that commodity prices remain high and that's hoping across the board.

Q: How high is the appetite for India as an emerging market, because concerns have been raised about the earnings potential of this market vis-à-vis many others?

A: The earnings growth here is still higher than most emerging markets globally. When we came to the reporting season, there were concerns about the technology sector. I don't think rupee has lent itself well for those sectors, but is suddenly seen depreciating now. So we could start to see the technology sector pick up.

Without those kind of factors, we would have seen a very strong growth in recent earnings, plus guidance is also very strong. The market is just taking a breather; it's trying to digest some of the negatives.

Q: Is it a likely scenario that having rallied so smartly, emerging markets and developed markets could go in for a slightly longer bout of correction? Or you think it might be a quick and short-lived thing?

A: In my view, just the Chinese market may go for correction. Today the Nifty index is probably flat and speculation rises quickly, so it might be one-two markets, which will come off and that will pull money back into markets, where the earnings per share and ratings are reasonable, and I think India is one of them.

Q: What do you expect to see by way of interest rate concerns for this market from hereon and how will that impact the entire interest rate sensitive family in the stock market?

A: I think interest rates may act as a small laggard but the markets are well aware of this, so it's fairly well priced into the stocks and sectors.  In terms of the banking sector we have seen a smart rally since the lows do not look as though it is going to continue. So I think we are going to bet individual stocks, rather than interest rates as a whole.

I think that was a surprise to the market a month or so back and we now kind of put all that into our kind of earnings and models and move forward. So I will be surprised if the market reacts too much to any further interest rate rises. But I also fear if the global interest rates, particularly in the US more likely to head down rather than up.

I think that eases the pressure for the RBI and other emerging markets to increase interest rates at this stage.

Q: What's the most important trigger for our markets now. Is it monsoon or interest rates, or is it global cues? What do you think will make the next move for us?

A: It's a combination of all of those factors actually and if they are looking positive which I believe they are then we will see the markets move ahead. The factors will be the same. I think if I were to say what the near term trigger would be I will probably say that the rupee going back towards Rs 42-43, which is probably more fair range for the rupee. I think that would give the market a big fillip because obviously the tech sector has under performed despite great earnings and good guidance. Therefore, you would see those sectors doing well.

Q: Do you expect the liquidity will be insulated to the largecaps space as well because the midcaps in the past month have had a patchy performance?

A: There are a lot of funds been raised locally for midcaps so selectively, you will see the midcaps continue to perform reasonably well.

I think liquidity will find its way obviously into the largecaps you mentioned before this quarter numbers coming. But there is sufficient number of new funds, which have been dedicated towards the midcap sector, which will continue to push certain sectors and stocks on a high.

Q : What's your assessment of domestic liquidity now. Do you think mutual funds are sitting on a lot of cash or a fair amount of that has come in since the market turned in April?

A: I think some of it has been deployed. Think there is still lot more to be deployed. I would say that the insurance companies will continue to put cash back into the market. So, I am less concerned about global liquidity than may be I was two months ago.

I think a lot of liquidity will continue to find its way back to the markets, globally. That is the direct result of all the mega bids you are seeing and lots of cash will come back to the market.

Q: If you had to pick out leaders for the market or sectors that have relative out-performance by way of earnings, which ones stand out at this point?

A: If depreciating rupee would be the catalyst then obviously the tech sector and banking sector will standout for me. 

Q: Which one looks vulnerable at this point?

A: Vulnerable, I would probably say that the auto sector. It's because of pricing pressures and competitive pressures that the sector is just going to keep margins under pressure in the short-term.

So it's probably the one sector, which I would be  a little bit more cautious on.

Q: What about metals? It has surprised quite a bit over the last couple of months.

A: Yes, it  does urprise with global demand remaining  very strong. I think it has also been fuelled by some of the mega bids, which are happening globally, and that doesn't seem to be losing any steam. So I think metal stocks will remain in focus.

On the other side of the world you are seeing some softening in prices, particularly in the US on steel, which may be without the bid activity. It will bring prices or share prices down globally, including India.

Q: How carefully are foreign investors watching political developments at this point? Is it a non-event for them or are they expecting to see some kind of policy change depending on the political scenario?

A: If you read most research that comes up from all the houses then everyone is saying that politics is really going to play a big part, but don't expect any major reforms due to general elections. I do not think any expectations are there with foreign investors at this stage.