Stick to themes; don't be too rotational in this market: Andrew Holland

“Try not to be too rotational because you do not know when it is going to turn, as we have seen with the PSU banks. When it turns, it turns pretty quickly. We are listening to Putin now. The minutes coming out from the Fed and RBI give us some direction, but expect a bit more volatility. So volatility will remain there, expect some rotation in the market, which kind of lends itself to where we are right now, the markets are just doing nothing,” says Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies LLP.

If you look at the index it seems like nothing is happening, but lots are actually happening under the broader umbrella, in PSU banks, for instance. What explains the sudden bout of weakness?
The whole banking sector has come off in the past few weeks. I have always said that one needs to rent the PSU banks rather than own them for a long time. We are always going to get these big trading rallies in them. They are great when you are getting that upside. But I would rather think about the larger, private banks rather than PSU banks at this stage.

Actually, it is very rotational. I am not sure that very much has changed in thinking over the last two to three weeks that we last spoke to change any views in terms of thinking about different sectors or companies. The market is being kept on its toes by a couple of things.


Globally, there is still the debate on interest rates, and we are seeing bond yields spike up again in the US. That is keeping people a bit nervous. Of course, the noise around Adani has not helped, and it continues from the international press anyway to be on the more negative side. Maybe that is what has given Reliance a bit of a showcase back in the sun again in terms of investors and brokers starting to look a lot more closely at what they are doing, given that they would also represent a large portion of the economy that is growing.

So perhaps the money flowing into Reliance is because of that. Other than that, nothing has happened. The Budget was just taken in its stride and there was no real excitement thereafter, because it coincided with what happened with Adani. I think it will take a few more months now for the market to just keep where it is, watch what the Fed is doing. I am a great believer that the first half is going to be difficult for our markets. In the second half, as our growth starts to pick up, we will get a lot more foreign institutional investor interest and see a lot more flows.

What is your take on the entire new age tech basket owing to the fact that a lot of the companies that we have been interacting with are definitely putting the focus on profitability, something that the market definitely wanted to hear? Have you bought into any of them recently?
I cannot say what we do, but we recently caught up with the top management of Paytm. The story they told is one which maybe was not understood when it came to the listing, but now they are focused on the core engines of growth. And if they can get the money that they are talking about from the banks in terms of loans and they are getting 4%, it is not a bad business to be in if they can continue to grow their business.

Of course, the banks will help them grow as well. So that is good news. The market likes that. The market likes the fact that they are focusing on the core business. Maybe we all got a bit confused at the beginning about the areas they talked about, which are potential growth areas, but were not the core growth engines of the company.

Now is the time to keep looking at these companies. Obviously, the fact that technology in the US has outperformed more recently is helping focus our attention in terms of getting that timing right because if and when we expect the Fed to go and hold, that is when the growth stocks and technology stocks, both globally and in India, will start to outperform again.

What is the outlook on the consumption space because there does seem to be a bit of a worry that a lower rainfall or weak monsoon could impact the overall rural outlook although a lot of these companies such as HUL continue to maintain that rural will see a healthy growth going down the line? Is this going to be a niggling worry in FMCG?
That has been a niggling worry for some time now and it will continue to have the markets concerned over the shorter term. But we still like FMCG and we still think that is the place to be. I have been travelling locally and the number of people travelling is astonishingly high. Therefore, the domestic consumption story, particularly for service industries like hotels, is good. I was told by someone that the cost of booking a hotel room near the airport in Mumbai is incredible!

So I think that is a great story and I do not think that is going to wait for us for some time. So going back to the consumption story, FMCG might still be a bit slow growth in rural parts of the economy, but that is already priced in. People know it. We have been talking about this for some time. I am less worried about that.

I am trying to kind of focus a little bit on what Putin says but these kinds of things, whilst it could be rhetoric, will just keep the markets on toes in terms of what one could do in the next few days and the first year anniversary of the Ukraine attack on February 24. That will keep the markets a little bit nervous ahead of that date. Also we have got the minutes coming out from the Fed and from the RBI. So we will see how hawkish some of the people in the committees are compared to what the chairman said and what the RBI people said as well. All that will make markets a little bit volatile for the next few days at least.

The cement sector has been in the spotlight after a long hiatus and we are seeing some price rise across the board. There have been a lot of cement names within the midcap arena as well. Anything that has caught your attention?
No,, obviously the headlines were on the price increases and let us see if they stick, though for the time being, it looks as though it will do. Again, the whole sector got kind of tarred with the same brush in terms of what was happening with the Adani Group. It was bound to have a bounce at some point. But by just rotating around different sectors, it is very difficult to make money in the very short term. So just stick to the themes. That is what we are doing.

Also, try not to be too rotational because you do not know when it is going to turn, as we have seen with the PSU banks. When it turns, it turns pretty quickly. We are listening to Putin now. The minutes coming out from the Fed and RBI give us some direction, but expect a bit more volatility. So volatility will remain there, expect some rotation in the market, which kind of lends itself to where we are right now, the markets are just doing nothing.