Union Budget 2012: Be cautious ahead of Budget, RBI policy: Ambit Capital

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Union Budget 2012: Be cautious ahead of Budget, RBI policy: Ambit Capital

With major events like Budget, UP elections results and RBI policy, March is going to be an important month for the Indian market. Andrew Holland, CEO (equities) at Ambit Capital says, he will be a little bit more cautious ahead of those events, especially Budget and RBI policy.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Coal India | Kingfisher Airlines | Bharat Heavy Electricals |

With major events like Budget, UP elections results and RBI policy, March is going to be an important month for the Indian market.  Andrew Holland, CEO (equities) at Ambit Capital says, he will be a little bit more cautious ahead of those events, especially Budget and RBI policy.  In the Budget, he would be looking forward to hear about fiscal discipline.

Holland expects developed markets to correct by middle of 2012. However, he believes this correction will not be more than 10% from the current levels.

The market eased early on Thursday on concerns over a slowdown in the global economy, including higher oil prices and data showing the eurozone may be sliding toward recession, fanning fresh worries about Greece.

Goldman Sachs said it expects Brent crude prices to rise to USD 127.50 a barrel over the next 12 months in order to restrain demand growth and keep it in line with available supplies. According to Holland, higher crude prices remain a key worry for India.

"The demand destruction at higher levels may restrict the crude rise," Holland told CNBC-TV18.

Commenting on sector-specific issues, Holland said, fundamentals not supportive for power and infrastructure yet. He said issues with key sectors like power and airline are unlikely to be resolved quickly.

Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying videos.

Q: You have been a bit cautious on the market. Is this looking like that long expected correction or is the money flows still too strong to fight any meaningful pullback in trade?

A: That's the hope, isn't it? I think everyone's been hoping for a correction and that will be a good entry point for investors. But to be honest, I don't think there is just a lot of conviction globally about markets. Yes, every market had a great run. We all know it is liquidity driven. I think that's where the conviction is not there for investors to chase. People, who have been sitting on the sidelines, are waiting for lower entry points. So, it could be a bit of self-feeding.

The oil price is a particular concern for me. I think that's what's going to hurt the market rise globally, if it continues to head north. I am worried about China. Over the last two years, that market is down nearly 40-50%. That doesn't bode well for what's supposed to be the fastest growing largest economy globally. So, there is something wrong there, there is something broken. I am not sure we will see what it is because the Chinese authorities have a great way of hiding figures. All the figures are not really transparent. So, it's on my mind.

I think we had a great run. I am not trying to be negative, but I think yesterday gave us a good idea that how fickle, how uncertain investors are and how quickly share prices can fall and sentiments turn negative.

Q: On global parameters, how would you read developments from the Euro zone? The market had a pretty cautious reaction to Greece, but what remains on the sidelines is that second tranche of liquidity that could come through. Is global liquidity and risk appetite still as strong as it was a fortnight back?

A: All investors are being fed on this liquidity diet and look forward to it. So, it's a little bit what we had in 2011. If the economy is going down then the governments will inject more liquidity and so forth and so on. But the side effect from that has been commodity prices rise. That's what we have been seeing. That's one is not great for emerging markets. Therefore, it puts a bit of a dampener on whether the RBI can be so aggressive in interest rate cuts, which the market was trying to factor in a few weeks back.

I think the side effects of all this liquidity will still be felt in a negative way. We will get back to fundamentals at some point. When fundamentals kick in, I don't think what we are seeing in Europe is going to please us at all. I think it is like lights are at the end of the tunnel, but how long is the tunnel? The tunnel just seems to get longer and longer in Europe. I think that's going to be the case for 2012 as well.

It is similar to last year, we had an optimistic start to 2011 on the basis that the US, Europe will all recover very quickly, I don't think that's going to be the case for this year either. So, maybe mid year, maybe next month, we might start to see markets taking the fundamentals that are not so great and start to de-rate some of these markets.