Mumbai: Valuations for Indian shares are quite stretched, and the earnings forecast for Nifty FY18 is down from 20% to 15% already, said Andrew Holland, chief executive officer at Avendus Capital Alternate Strategies.
In a phone interview with Mint, Holland said there are more risks of a downside than upside currently, with global events such as French elections and slowdown in China. Among sectors, Holland does not like Indian IT, pharma and telecom space, but prefers private banks and building materials instead. Edited excerpts:
We have a huge rally in the market? How long do you think the party can last?
Basically, valuations are quite stretched and that’s for sure. The earnings forecast for Nifty FY18 are down from 20% to 15% already. We will start with a slew of global events, which could put some worry in the market. We do have the French elections coming. China recently said their GDP growth will slow down to 6.5% and this got ignored by the market.
The GST (goods and services tax) will be implemented in July. While it is beneficial in the long run, it could slow down the economy for three months. We are not seeing a big sharp rebound in growth at all. I am not overly negative on the market. The market may continue to rally with the global markets in the short run.
Are there more chances of a downside or upside from here?
There are more risks of a downside than an upside. If we do not have a problem stemming from French elections, we could see a 5% correction from here.
The gush of liquidity is still on, more specifically from domestic investors. How do you see foreign institutional investors (FIIs) positioned?
FIIs are rushing in other places like Korea and Taiwan, which are beneficiaries of global growth. Dollar has been on the rise because interest rates are rising, and this would be of worry to emerging markets. In that case, I think an emerging market fund manager would end up allocating more money to India eventually among EMs (emerging markets), as it is sort of a safe haven bet. India still has its defensive tag in the world markets.
When do you think there will be concrete recovery in earnings growth?
I think it will be the last quarter of the calendar year. If GST is implemented on 1 July, it might take July-September to adjust to it. So, growth should return in the December quarter.
How do you view the Indian IT sector amid talks of protectionism and H1B visa woes?
Even before these issues, I have been very negative on IT, mainly because the whole decade of growth , which the companies enjoyed, is over. The (H1B) visa thing is going to accentuate the problem. At the moment, the rupee is also strong , which could hurt the sector.
Which other sectors would you avoid at this point of time?
I would still avoid telecom. I am not sure if 2+2=4 (for this sector). I would avoid pharma, from the regulatory viewpoint, as it still faces problems despite the issues being highlighted a year ago. Also, I don’t see that Trump’s policies are going to favour Indian generic companies.
Which sectors do you like at this point of time?
I like private banks, building material and companies which are exposed to global growth.