After 18% drop in Sensex values, Andrew Holland, CEO, Investment Advisory of Ambit Capital, feels its a good time to do bottom-fishing. While he finds the valuations attractive, he also advises retail investors buy at every correction and don?t go the whole hog. In an interview with Devangi Gandhi, Holland said unless the market sees some constructive measures that give them confidence to overlook the slower growth numbers in developed markets, the volatility would stay. Excerpts:
Do you see uncertainties in the global market fading any time soon?
More than the expectations of the double-dip, the market has remained volatile due to the uncertainties in the US and Europe. The decline post the S & P downgrade has come as a surprise which has forced investors to become risk aversion. There are two things in play. Even economies like the US, where core inflation is relatively low have felt the effect of higher commodity prices. On the other hand, Europe is struggling to keep the calm in its group economies.
Since throwing liquidity has not really changed these problems structurally in QE1 or QE2, only a combined efforts from US and European countries could find a long-term solution. Until the US government don?t reach an agreement on the deficit and on their differences on how to reduce it, any credible solution cannot be achieved. In the European union, since they have already increased the interest this year, they have a bandwidth to bring it down. Also, they need to come out with a clear plan to handle debt problems of Spain, Portugal and Italy. Unless the market sees some constructive measures that give them confidence to overlook the slower growth numbers, the volatility would stay. There could be bouts of short-covering on every positive development but the volatility could still stay.
How do you see the Indian market if another round of QE3 is announced?
If we continue to see a decline in commodity prices along with falling global markets, it could be a positive development for the Indian market. If there is a global slowdown, central banks generally don?t let the interest remain very high for longer period. Hence, lower commodity prices could give RBI the flexibility to reduce interest rates.
The outcome of QE3 may vary depending on the way it is announced. However, if it is equivalent to throwing money into the financial system, then that money could find its way into commodities market, not changing the scenario for Indian market much form now.
If the dust settles in the near-future, with some positive clarity on the state of the US GDP growth and stable commodity prices on the back of a credible plan by the US and Europe, India, which is at the peak of its interest rate cycle, may turn out to be more lucrative for a BRIC fund. Due to its strong domestic consumption story even in the worst crisis of 2008, it managed to grow at 6-6.5%.
Can you name companies that look attractive at this juncture?
During sharp corrections a lot of goods stocks despite their strong fundamentals, get battered without any real reason and turn into a good buy for longer term. Recently, some of the private sector banks have been hit hard which may turn out to be good bets especially if we see any pause or decline in the interest-rate cycle given the current conditions. Some of the automakers like two-wheeler companies also look appealing at current valuation given their strong earnings growth.
What should be the strategy of investors at this point?
They could look to bottom fishing into stocks which have good performance potential for over two years. Given the uncertainty, investors should be looking to enter the market at various points of corrections as well as stability and not to put in the entire principal during a single correction.