More M&As to boost global mkts: DSP ML

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According to Andrew Holland of DSP Merrill Lynch , the interest rates are low in the US and the soft landing is expected to continue. He sees global growth and M&A activities remaining strong.

Holland adds that though there was a scare regarding the bond yields in the US, the markets reacted well to that.

He feels that if there are more mergers and acquisitions markets worldwide will continue to move up.     

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

 

Q: It has been quite sticky for the last few days and we have not yet gone to a new high on the Sensex . Do you think this underperformance versus the global markets is about to change?

 

A: The interest rates are low in the US and there is expectation that the soft landing will continue. The global growth and M&As still remain very strong. So, what we had in between, was obviously a scare in terms of the bond yields in the US. But markets reacted pretty well to that.

 

If we can see some more M&A activity, which is more likely than not, then the markets worldwide will continue to move up. India has been a laggard; so maybe it is time that the market, after what we would call a consolidation, will now move higher. The risk is it is going to move higher rather than lower in the short-term.

 

Q: What gives you the confidence that it may not be a deeper cut but instead a sideways move and then a move up for this market?

 

A: Obviously, a lot will depend on what happens to global interest rates and particularly the US. But I think everyone feels that the move last week, in terms of higher interest rates, is now over and we are back to where we were two or three weeks ago.

 

I do not see the markets absorbing a lot of issuance that we are seeing at the moment and it has held pretty well. It has not actually outperformed compared to some of the other markets, but then again FII investors are getting the luxury of a strong rupee. So, obviously that gives them better returns in dollar terms as well.

 

Q: Do you subscribe to the theory that the secondary market is going to get pinched, by way of liquidity , while the large primary market issues are digested and done with?

 

A: Yes, I think that has already started to play through. These are quality issues and money will always be put aside for them. Thereafter, we will start looking at the fundamentals again, not just for India, but globally too, which as I said is looking okay.

 

So, I think the risk is more to the upside than to the downside. There are a lot of issues coming and that will take liquidity out. But that has been factored into the market already. Markets are always factoring in what is going to be around the corner. If global cues remain strong, I am positive that the market could be squeezed higher.

 

Q: The bounce back today has been without any support from technology. Do you see that sector participating at all or continuing to remain the underperformer that it has been?

 

A: Well it really depends on the rupee. Our view is that the rupee will depreciate, maybe after these issues are out of the way and the monies come in. But if you speak to all of these companies, they still sing the same kind of song - that they are seeing strong growth and better pricing.

 

So, we are really talking about currency, which will affect the profitability, not the long-term fundamental story, which is still very strong. If the rupee was to depreciate, then obviously these stocks will start to perform very quickly.

 

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