We are going into the backend of the year and are looking into next year with the kind of goldilocks scenario of growth picking up globally, lower interest rates for long - all that bodes well for global markets, including India because now our expectations are very high for the budget and to what the finance minister is going to do to get the economy going said Andrew Holland, CEO of Avendus Capital Alternate Strategies.
“Emerging markets will get more flows now given the kind of global backdrop and India's weightage in the emerging market fund sector would mean that we will get fund flows which we have been seeing for the last few days. I think that continues and everything looks good to the budget,” he said in an interview with CNBC-TV18.
Talking about the budget wishlist, Holland said, “There are so many but where I think the government needs to concentrate is on fiscal spending maybe get a lot of those projects, which are stuck moving. That would help the cash flow of companies because just giving big orders which are going to be executed 3 or 5 years later just doesn’t help the economy, so you need to get that multiplier effect quickly. Then you can look at other sops and if you get income tax down then that would individually help the consumption story going forward.”
“It’s all about the confidence in the economy and getting cash flow back into the small and medium sized businesses which are suffering at the moment and which is why there is a big divergence is seen in some stock performance as well. Therefore, I think it’s a combination of many-many things and I don’t think there is magic wand that they can wave and the economy starts to recover. It’s going to be a slow grind. It is not going to be a V-shaped recovery for sure; it’s going to be a slow grind for the economy to recover,” Holland added.
Sector specific he said they were not sure if IT was a great place to be in because of many reasons. Banking sector globally is still reeling due to lower interest rates and if it remains that way for longer, it is not great for margins. "So, the financial sector remains difficult and if the dollar is going to weaken going forward because more money is going towards emerging markets then the rupee will appreciate from here and that’s not a great help to margins for the IT companies," he said, adding that they would prefer to switch from IT to pharma to play the export story.
Moreover, domestically as well pharma companies have a strong market and rupee appreciation would be a big driver of earnings.
Speaking about midcaps, Holland said, “Probably, we are one quarter away from really thinking that midcaps and smallcaps would start outperforming but then you will have to see some evidence, more of the green shoots which we are hoping to see or starting to appear - in terms of growth coming through in auto sales or consumer spending. You need to see that first and I do not think that’s coming for the next quarter.”