It’s okay if market consolidates here before next up move in early next year: Andrew Holland

What do you make of this market? The entire week may make some of the retail investors question that we are still in the midst of a bull run. Most experts say that this week has been a bad one but for the month, we are still doing pretty well?
It is still slightly higher for the month. It is 5% from the highs or a little bit more. We know that it is not about a healthy correction. We all have been saying that there has to be some correction at some point and we are getting it and I do not think there is anything about it because nothing globally is causing this. There may be a bit of fatigue; the risk reward was more to the downside on risk for our markets after the great run and I do not think there is anything wrong with it to be honest.

Did you make use of the buying opportunities?
We run a hedge fund. So, our hedges were quite high anyway coming into the week and that has offered some protection in some of the index stocks and some of the stocks have fallen. But it is not one of those where you feel that there is a bigger correction coming. We have always said between 5% and 10%, and we have had 5% from the highs. Maybe a couple of per cent here or there, but it is not anything to kind of worry about.

The only thing that I would say is that the result season, apart from the first couple of companies, has not been great. The commentary is okay but one can see the pain in terms of margins from input cost and supply chain problems and that is a concern. I just want to see how the analysts react to that to see if they are going to take any red pens to their forecasts which they have been steadily upgrading over the past year. That is the only thing which would be a concern at the moment.

This sort of a choppiness in the market is likely to go down. We got three different fundamental downgrades coming in earlier this week from Morgan Stanley, Nomura and from some others as well. What do you make of this?
That is correct. We had a great run and we had been in a one-way kind of move up within the past year or so. So you are bound to have these corrections and we should not worry about them too much. The downgrades by some of the leading brokers is really seeing value elsewhere and India has been a great performing market compared to all emerging markets and I think compared to developed markets too.

So there is bound to be some kind of profit-taking or somebody waiting, maybe China is looking cheaper to them than India because of valuations. They have not fallen quite significantly. So it is all relative. It is not saying that it is more of a neutral weighting rather than an overweight weighting. So it is really just a tweaking of that rather than saying that anything particularly wrong with India which fundamentally would see markets fall a lot more from here. I do not think there is anything to worry about in that but valuations have been a worry and, of course, as I mentioned before, the result season is just throwing up those kinds of worry points in terms of the corporate margins being impacted.

So it is there in the top line but it is not really translating through to that bottom line as much as I think we would like. The next quarter again would be critical. So if the market consolidates around here before the next up move, maybe towards the early part of next year, then I do not think there is anything wrong with that. It has been a great run and we cannot have every single company and sector being the growth winners.

For example, in autos do you try and find that EV winner or go for the auto parts which will be supplying all the electric vehicles anyway. Those are the kind of things the market will start to concentrate on a little bit more rather than just saying no the Nifty is going to and we are all used to the markets falling and then bouncing back up. Maybe it still will because liquidity and retail investors are not going away and that could be a buying opportunity for them too.

When we talked about the EV thing that you mentioned, when there is this confusion regarding how things will move ahead and what will happen, what will be the next trigger for this choppiness to come in?

We have been ignoring quite a number of factors like the high oil price, the high metal prices, the supply chain issues. It has just been a one-way street. And of course globally we are kind of going through the phase of “is there stagflation? Is there no stagflation? Is growth weakening? The supply chains are having more problems and global growth is slowing. All these are factors which I think will continue to have volatility going into December tapering by the Federal Reserve.

These are things that the market will worry about a little bit more. As I said, a healthy correction from the highs is not a bad move. If the developed markets were to fall from here, we have already seen quite a reset from our highs.

We saw a bonus split and the government saying that 50% of the convenience fees has to come to us. The stock crashed. In less than 12 hours, the government did a U-turn and withdrew the decision. Is there a case for a rerating of the PSU pack again soon after the Air India privatisation?

You have actually hit the nail on the head. I think the investors are getting more comfortable at the fact that the government of India will act quickly to amend problems which may be there or on intention and the privatisation of Air India is a great step forward. Whilst I am not saying that all the PSU entities are in play, the government will take heart from the fact that Air India was seen very positively by foreign investors and the fact that the Tata Group took them over and a positive impact it will have going forward.

If they continue with this privatisation or divestment programme which the government seems to be willing to push forward very aggressively, I would just comfort foreign investors that the government means business. It is not as if they have not done so but interestingly all of these things just help the sentiment that India is open for business and it wants to do the right things. It is great news.