Apr 18, 2013, 08.03 PM | Source: CNBC-TV18
Speaking to CNBC-TV18, Holland, CEO equities at Ambit Capital, says there aren’t enough trigger to hold market where it is now and Nifty may head towards the 5200-5300 range.
Andrew Holland (more)
CEO (Equities), Ambit Investment |
Among the negatives facing India, Holland chalks out muted earnings growth, a fall in rupee if foreign institutions sell again and failure of the reforms to yield the desired result.
Recent data from Germany has punctured a lot of revival hopes which will aggravate the turmoil in Europe and that will have repercussions on India, says Holland. He foresees global markets having a huge fall in May and India will be part of that sell-off.
Below is the edited transcript of Holland's interview to CNBC-TV18.
Q: How are you feeling about the global backdrop now? It has turned volatile again.
A: It is looking quite grim actually. The numbers from Germany that came out yesterday and the confidence index were quite shockingly bad. Auto sales are down 10 percent plus in Germany. I do not think it bodes well for Europe at all. I do not think that is the reason why commodity prices have fallen off. There is something happening out there, which is not very good and it will play out over the next few weeks.
While I could be very positive about the implications for the Current Account Deficit (CAD) here in India, my feeling is that Nifty is probably going to see 5200-5300 first before we even think about moving higher. So, the outlook looks a big grim globally. It is the results season both in the US and here. If the companies reporting recently are posting better results then I am just trying to think what will happen for the rest of the results season.
Whilst TCS and HCL Tech have posted great set of results, there are no surprises. If anything, more worries could be the visa issue in US for IT companies and valuations do not really make it one sector which one would want to chase, particularly the likes of TCS. So, I am not sure of what is going to hold this market up. I just think it is going to come down with news selling from Foreign Institutional Investors (FII) because there is going to be a global selloff because of this commodity fall. It is probably telling you what the picture is going to be like maybe a month down the road and that is not going to be very nice at all.
Q: What do you think is more probably happening in this global commodity collapse? Do you read it, for now as some kind of technical adjustment where there is some risk aversion, there is a margin call crisis and that is probably what is playing out? Or do you think it is a much deeper growth malaise which is going to have deeper ramifications for markets globally?
A: One of the problems that we have had in the past is that a lot of liquidity would find its way into commodities and that was going to keep the prices of oil and other commodities quite high. This year everyone was talking about the credit rotation trade from bonds to equities. Actually, it is from commodities to equities.
Bond yields in US are still way below 2 percent and infact, bond holdings have been rising. So, there has not been that big rotation trade. Now, with some of that easy money coming out of commodities, we will perhaps see the real gauge of what demand is globally and perhaps that is going to be the shocker for us.
With the International Monetary Fund (IMF) recently reducing growth it can only get worse. We are three-four months into the year and already forecasts are being lowered for growth. So, it is kind of a déjà vu. This time last year markets rallied very strongly in the first few months only to test everyone’s patience again in summer before the big liquidity event. This time around, that liquidity event in Europe might be held back because we have German elections in September. I am sure Angela Merkel will want to try and win the race again. There is going to be a little bit turmoil in euro coming through. So, oil should have been north of USD 80 in terms of what the demand is and the slowdown we have seen in the world and that is reflected in the Brazil, Russia, India and China (BRIC) performance.
Brazil and Russia’s markets are actually worse than India for once and China itself is slowing down quite quickly as well. I am not saying there is no hope. There is always hope. I think in the very short-term and I am talking about between now and the end of May, we could see a big fall in global markets and India will fall. It could happen as early as next week.
Q: The only hope is that since commodities are correcting, India will probably fall less than other emerging markets in the event of a global selloff. Is that just a wishful thinking?
A: It is always wishful thinking to say that we can decouple ourselves. We had a lot of flows- USD 10 billion so far this year. If risk-off comes to the global markets, then I am sure Exchange-Traded Funds ( ETF ) will have to sell India and that will be very concentrated. It will be on the blue chip stocks. I do not think anyone here is going to try and catch that falling knife. That is really where we are going to be and it will be a scary story globally. So, we will all sit on the sidelines waiting for the central banks to come and bail us out again.
Q: Where do you see the biggest source of global risk? We have not had a major risk-off event over the last many months in global markets. Do you think it is coming from Europe again, is it from China or do you think the strongest market US might actually lead the disappointment?
A: In the US, we are seeing some very mixed numbers recently. The US is probably more of an earnings story. The whole earnings rise and margin improvement is now over and there was quite a lot of inventory back up to the GDP for the US in the first quarter, so we already starting to see forecast coming down. What this commodity fall could really be telling us is that there is a demand shock out there to come. Maybe that emanates from Germany or China which will scare us all, particularly Europe if Germany is starting to turn down very quickly. So, that is probably where I would see the biggest surprise in terms of downside, in countries like Cyprus, Greece or Portugal. We all know this problem. I do not think we walked into this year thinking there is going to be a demand problem. Maybe that is just starting to be realized now in the commodities market ahead of what would be a disappointment. This is because everyone was banking on the US and Europe. For US to start growing, Europe to muddle through and start to show some signs of recovery is clearly not happening. So, maybe, that is what is going to scare us all and while I can think about the positives for India in the medium-term, I do not think we can escape that global selloff. It is difficult to time these things, but markets always have the habit these days of pricing it in very quickly.