Multiple triggers, including regulatory actions, high valuations, the recovery seen in China, and the ongoing earnings season, are contributing to the nervousness in the markets, according to Andrew Holland, chief executive officer at Avendus Capital Public Markets Alternate Strategies LLP.
China is actually seeing some recovery in terms of sentiment, and a lot more brokers are becoming positive on China, Holland told NDTV Profit in an interview. This is possibly taking off flows from India to China in the short term, keeping in mind the cheaper valuation in the dragon nation, he said. “People don’t want to miss the China ride if it’s going to happen.”
The increasing regulatory actions by the Reserve Bank of India are causing uncertainties that markets don’t prefer, Holland said. “I can see the reasons behind it, and it’s good for the long-term health of the sector. But short-term, it gives that uncertainty of what next and finds there be something else that’s going to come out.”
The financial sector was starting to outperform, and then this extra regulation dampened the sentiment, Holland said. “Markets don’t like uncertainty, and therefore you are seeing the volatility.”
On the ongoing Lok Sabha elections, Holland said that the current market has already priced in the flows that were seen late last year.
The current earnings are mostly in line with estimates, with no big surprises, the CEO said. The two sectors that markets expected to there would be bottoming up were banking and IT “If that was the case, then that would be the catalyst for the markets to move higher.”
The information technology sector has not reached the bottom yet, and with rates at the year-end, there is no tailwind. Meanwhile, the baking sector is up as net interest margins have normalized, Holland said.
In the FMCG space, markets are excited about the commentaries from companies that rural economies are going to start picking up in the second half of the year.
“If you want to play premiumsation I would go for the beverages sector rather than the pure FMCG sector. I don’t think I’m buying into the whole rural economy’s spending.
Defence, railways, infrastructure, and renewable energy, we will see a lot of growth going forward, according to Holland.