Subscribe to PRO at just Rs.33 per month. Use code SUPERPRO
Last Updated : Sep 18, 2015 06:29 PM IST | Source: CNBC-TV18

Ambit's Holland sees Nifty testing 10,000 by yearend

Taking a contrarian view, Andrew Holland, CEO, Ambit Investment Advisors, says he expects the Nifty to trade closer to 10,000 by the yearend and that the Federal Reserve's decision to not hike interest rates will not result in uncertainty.

Taking a contrarian view, Andrew Holland, CEO, Ambit Investment Advisors, says he expects the Nifty to trade closer to 10,000 by the yearend and that the Federal Reserve's decision to not hike interest rates will not result in uncertainty.

In an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Holland said emerging markets have priced in a US Fed rate hike as well as the Chinese slowdown and added that he expects China to come out with more measures to boost its economy.

He believes he banks and Reliance Industries will leave the next market upmove.

Below is the transcript of the interview on CNBC-TV18.

Sonia: There is a bit of a relief rally that is playing out now for sure but will the uncertainty continue to remain in the Indian market because of the overhang of when the Fed will hike rates next?

A: I do not think so. I think the Fed will go in October or December. If you go back a few years, we had the same with tapering which tailed off a little while before the Fed came back and did what they have to do.

In my mind, the volatility will go out of the market now and this is the most bullish happening this year and by the end of this calendar year -- i.e. December -- the Nifty will be nearer to 10,000 than it is to 8,000 today. So we have started the resumption of the bull market, so it's good news.

Latha: Did you say 10,000 this December?

A: Yes.

Sonia: This is the first time in a very long time that the Fed acknowledged the slow growth is emerging markets like China. I haven't seen a statement from them talking about emerging markets in very long. Do you not think that that could perhaps restrict the upsides for emerging markets in general?

A: No, not at all. I think emerging markets have not just priced in the Fed rate hike. They priced in eight to nine months ago when the currency (US dollar) started to appreciate and the market started going down and the fact that China was slowing.

So all the Fed is doing is it is just holding up a little bit more normalcy around market. However, what I think is going to happen and why I think the volatility is going to go out is I do think China will come out with some fiscal policy measures to boost the economy and that will give us all that kind of relief factor in terms of that they are doing something to get the economy going. And as soon as they do that then the Fed will be on button pressing for a rate hike in a more conducive environment - that's going to happen here.

However, when I look at India now, the RBI Governor doesn't have his hands tied anymore. He has to do 50 bps; he has to do something for the economy. He can talk about the government doing things he has to [take action] now and if I take that in and think about corporate earnings which is starting to improve significantly as both in topline -- even slightly single digit -- you are getting operational gearing and you are getting margin improvement because of low commodity prices. That's because of wide range of industries now.

So the earnings part is going to be better and that's why we are going to start resume this bull market and it will be nearer to 10,000 Nifty before the end of the year.

Latha: On whose shoulder will this 10,000 Nifty stand. Who will be the leading lights?

A: It hasn't changed since we last spoke. It's going to be obviously the banking sector. Reliance Industries will have a strong run at the back ended year as they unfold their plans not just for telecom but for retail and because of our view that the yen will get weaker than Maruti Suzuki.

So it is going to be the banking part which leads all the way up and it will drag all the other bets of the market. I think also industrial and capital goods companies like Larsen and Toubro (L&T) as well will start to move a lot higher as the economy starts to pickup and we get more confidence.

I think there is a lack of confidence. We can look at the negatives that the Fed, if you want to but at the end of the day being on hold was probably okay and October is when they will increase rates after the Chinese fiscal policy is announced. I think that is coming soon.

Sonia: Do you think that this market has now formed a firm bottom at that 7,500 level that we hit a couple of weeks ago?

A: I am not trying to think about the bottom. I think about where we are going and unless I miss something then I can only be bullish from here on, so market can always test your patience but thereabout. So I am not thinking of where the bottom is. I think we are going towards 10,000.

Sonia: Going ahead you were telling us about a couple of pockets like banks and Reliance that could lead the market on the upside, what do you do with the pocket like pharmaceuticals which has been the sectoral leader all through this year, how do you approach that space now?

A: Pharma has always been a good place to hide but I always get worried about the regulator in the US and what comes out overnight and which stock you are holding. If India is a domestic growth story then I want to be in companies or industries, which are going to benefit from the actual growth of India.

I know that pharmaceutical can play a little part in that -- I can buy the broader market on 10-11 times with growth rates of anywhere between 20 percent and 50 percent depending on the company.

There is a lot more value elsewhere I think in this domestic growth story of India and the pharmaceutical stocks will move higher in this kind of index that I am talking about but there will be outperformers that is for sure. It is going to be the banking sectors that we talked about.

Sonia: When do you think that inflection point in earnings will come through?

A: I think it is already happening. You are seeing single digit kind of topline growth but because of operational gearing in India, it has a bigger impact on your bottomline and because of the raw material cost -- in terms of how much is helping the margins -- you are going to be surprised.

I met a specialty chemicals company a few weeks ago and he said my topline is 4-5 percent, my bottomline profitability is 32 percent higher. These are kind of things, we all miss because we are too gloomy about what is happening in China or dumping is a mess but everyone is benefiting across the industry.

Obviously there are some industries like the steel industry themselves and are not being held but across the industries, it helps. So if Maruti is seeing single digit profit growth, they are benefiting from the tailwinds of a depreciated currency and raw material prices, so that is going to assure good growth.

I think this quarter you will start to see the benefits of what I have just said. However, the next quarter it will start to play through and that is why we are all in agreement now the index is going to be higher.

Sonia: Just one follow-up to the stock that you have been quite bullish on for a while, which is Bharat Forge. That stock has been under pressure for some time now because of the slowdown that we have seen in the North America truck demand and now with exports as a pie slowing down for our country, there are some more concerns there, what would you do at a time like this?

A: Bharat Forge was one of our very early calls and we have moved away from Bharat Forge into other auto component vehicles. So that was some time ago. Again it is a great story, you had two things going for Bharat Forge, one would be offshore operational gearing and then the onshore operational gearing which play through the share price going up four-five times but then it became richly valued and then we look to the other companies in between.

So Bharat Forge is a company, I don’t need to look at right at this moment but the valuations have come down a bit. So we will probably look at it again but these are the component companies in the auto side, which we could look at. We basically only own the domestic growth story in India.

First Published on Sep 18, 2015 10:00 am