ET Now caught up with Andrew Holland, CEO, Ambit Investment Advisors, for his views on the Indian and global markets and certain stocks. Excerpts:



ET Now: Somewhere, do you think we are overplaying this Modi rally?



Andrew Holland: ​Yes, I think we probably are. There is a feeling that if Modi comes to power, he will do all the reforms. There are no problems with the fiscal deficit and the current account deficit. So yes, it could last a little bit longer and fortunately for India, global markets have also helped in the very short term, but problems in China are out there and global markets would ignore them at that peril.



Moreover, the euro is quite high against the dollar and that could cause some problems for Germany, going forward, as far as their growth is concerned. So there are some headwinds coming in and it depends, how much that is going to affect the emerging markets.



In particular, the FED will continue its tapering and I am still of the view that growth will surprise on the upside in the US and we still could be talking about interest rate hikes, or when they will happen in the US.



If that happens, then there are a lot of emerging markets that are still just not ready for that to happen. So India is standing out, but every emerging market may not be so lucky if the US economy continues to grow at the pace it is growing.



ET Now: You have also talked about how one would now see a shift to the developed markets, as opposed to the emerging markets and thereby India. Can you elaborate?



Andrew Holland: That has been happening actually. There have been quite a lot of outflows from emerging market funds over the past three or four months. So that is continuing to a play a part.



India as we know is standing out, firstly because of the stable currency and obviously we have the elections now which, as you pointed out, promises all blue skies going forward.



However, I do not think that the outcomes will be so easily attained and we could see more volatility going forward. So for the time being, markets are just going to continue to be positive given that there is still some value out there in sectors which we have been performing.



ET Now: We are already at 6500 or thereabouts on the Nifty. If you do believe that there will be a reversal in flows and that the market is sort of overplaying this hope trade, when do you think the market would hit a ceiling, after another 5% move from here?



Andrew Holland: If you bank on consensus market views at the moment, then for the Nifty it will be at 6700 before the elections and 7000 afterwards. I am not going to say whether that is right or wrong, though. It could well be right.



Our view is that in the very short term, the momentum is there, but once it changes, you could see a lot of these hope stocks see some spectacular downward movements and you do not want to be caught in that kind of trade on the way down.



So we are thinking too much ahead in terms of what will happen and there are no serious concerns globally or locally to affect that at the moment. It is just a crowded trade, which if you try and buy into now, you could find that you are sitting on a hefty loss in a few weeks’ time.

ET Now: Do you think the selling in large cap IT is slightly overdone? The consensus view is that the rupee will appreciate and that is bad news for IT, but are markets forgetting that in Q3 when the rupee had appreciated against the dollar, IT companies still came out with strong numbers?



Andrew Holland: Yes, we still like the IT sector. We had moved out of the pharma and consumers sectors and moved more towards the cyclical trade from October of last year, but we still like IT.



If you think the global economy is going to grow, which we do in terms of the US and Europe, then obviously IT will play a big role in terms of earnings and margins.



So I am less worried about this. It reminds me a little bit of that run-up to December, when we had the Modi factor, all of which evaporated very quickly thereafter. The same could happen if we get any global event and the China scenario is a one which I am watching very closely, because the market is telling me something.



It is down again this year after having a brief rally in January, the yuan is depreciating very rapidly. So they are trying to assure economic growth there and the market is telling me it is not working. So something has got to give in China, I think.



ET Now: You say that you continue to like IT as a pack. So have you used the dips on the last three days to add more positions to the stocks that you like?



Andrew Holland: No, we will wait till it plays out a little bit more. Again, you do not find the momentum that you want there. Obviously the currency is strengthening at the moment and there is nothing quite out there on the horizon, which is worrying the markets, particularly the emerging markets, and despite what is going on in China, or in Ukraine and with the euro, until there is clarity on what happens, let us wait for the entry points which are getting closer.



However, the momentum is in favour of jumping out of defensives and into cyclicals and into banks. We do not mind the first part in terms of cyclicals, but we are certainly not in favour of banks.



ET Now: Along with cyclicals and industrials, consumer discretionaries, which are largely autos, are also making a comeback and the markets believe that if the economy comes back, auto demand will come back as well. Do you think that there is a grain of truth in this kind of an assumption?



Andrew Holland: Well, we have been liking the auto components part of the trade and Bharat Forge in particular has been one of our favourites. However, I do not want to be buying into the two wheelers and four wheelers.



I think there is a lot of competition there and a lot of margin pressure. So I would rather stick to the auto components side of the auto play for the time being. However, it is a sector we will continue to look at.



When we are looking at these cyclical sectors, we are trying to say that the economy is going to grow at 7% next year and that is what is worrying me. We are looking at GDP growth more in the vicinity of 5.5%.



Therefore, it would be a reality check, whether it happens now, or when the new government gets formed, when the Finance Minister has to sit down and give us some credible numbers, because certainly the last numbers were not credible enough to make me feel that India does not have enough problems still to sort out.

ET Now: Within the banking space for the moment, are you happy to own HDFC Bank or ICICI Bank, because HDFC Bank offers a lot of quality and visibility and ICICI Bank offers deep value?



Andrew Holland: I do not want to own any banks at the moment and I will go back to my, what I have said for the most part of last year, that when you have moving markets, as we have today, I do not mind renting the banks, but I really do not want to own them.



Again, the ‘blue sky’ scenario here is that we will pass all the problems in the economy, growth will start to kick in and all the NPA problems will go away. I do not think it would be as easy as that.



If you speak to any corporates they will tell you where the problems are in their own sectors and which banks are hiding problem loans. Hence, it might be a trade which people want to play now. .



However, it is a bit early and I am not going to chase it. I will rather rent them. On the question on HDFC versus ICICI, I do not think that in this kind of a market really matters. You just have to have some of the banks. It is a pretty easy call.



ET Now: You prefer auto ancillaries as opposed to auto majors. Why is that?



Andrew Holland: If you take Bharat Forge, it is one that we would like. It has operational gearing which is favourable for a pick up in the US and European car sales and if the economy in India starts to slowly pick up in the second half of the year, we will have operational gearing there as well.



So it is really where we see global cyclicals with local cyclical plays and that is where we want to positions ourselves, rather than on pure domestic plays at the moment.



ET Now: You are also not fond of pharma, nor are you fond of power or telecom. So besides IT, or rather auto ancillaries, are there any sectoral bets that you are taking at this point?



Andrew Holland: Yes, so we wrote to our investors last October and said that we wanted to make switch away from pharma and consumers towards industrials, utilities, auto components and metals, which we have effectively done.



Metals is a sector which we have not yet got involved with, because of the problems in China, but we are looking very closely to what the entry points are for moving into metals and that would be a big call for us.



Then, power is part of utilities, but again, we do not think that it is the right time to be buying yet, but we are again looking at some companies in terms of what the entry points are and I do not think that will happen over the next few months.



Let us see the markets come down a little bit further from here and that will give me the effective entry points to enter these two sectors. As regards telecom, I just cannot get excited after the auction, or the money paid for the spectrum by all the incumbent players and I am not of the view that consolidation will happen that quickly and hence, there will be more and more pressure on the margins for these companies. So although telecom was a great story 10 years ago, it is not a great story today.

ET Now: What do you own from the midcap IT space?



Andrew Holland: We don’t own any midcap IT at the moment. Tech Mahindra remains our favourite play there, but as I said, what we want to do is just wait for this momentum to play out, in terms of a move away from defensives into cyclicals, which we think will happen very soon and then we will start to add these stocks to our portfolio.



So, if you have a long-short fund, you do not really want to be holding stocks which are going to show absolute negative price reactions in a month. You have to get your timing right, which is what we are trying to do.



ET Now: Do you think Maruti somewhere could be a deep contra buy? Even though there is some angst among institutional investors on what Maruti is planning to do in Gujarat, the ownership patterns have not changed. Their new launch Celerio -- the automatic small car -- is a big hit and they still are holding on to their market share in the passenger car market.



Andrew Holland: I think there are two ways to look at this. One is that, for the next two years, it does not really matter because the plant it is not going to be operational.



Therefore, we can all forget it for two years and then come back to it again, but the underlying view is what next. I suppose there could be a win-win situation and they are doing well anyways.



So the share price should do well and if they can ease back on maybe some of the proposals they have, or make it more favourable for minority shareholders, then again that would see a big catch up in the share price from where we are today. So I am not buying it at the moment because I would rather be in auto components, than the auto sector at the moment.



ET Now: Pharma too is not part of your preferred list and you believe that there is too much regulatory intervention which is spoiling the case for some of the pharma majors. But then, there are majors like Dr Reddy’s or Aurobindo Pharma, which have performed and do not have any regulatory issues. Is there anything that you like?



Andrew Holland: In the whole sector, firstly, valuations are quite stretched and secondly, you just don’t know which company is going to be hit by what regulator and what the problem might be.



The sector has had a great run and bit like consumers, it is not relying on any bad news. It is all kind of priced in and hence, there is going to be disappointment in both the consumer and pharma sectors to my mind. Yes, companies will continue to do well going forward, but the valuations just make me feel too nervous to want to hold them at the moment.



ET Now: You are sounding really bearish. Can you afford to be that bearish in this kind of a market, where the momentum clearly is occupying the centre stage, because if you do not participate now, you will also have missed on the upside?



Andrew Holland: My negativity does not mean that I have to be completely short all the time or negative all the time. We will go with the momentum if that is the case.



At the moment, I just fundamentally cannot find a reason to be chasing this market. As I said, we started making our switches last October and that has paid off for us. Our funds are up 21% in 9 months. That demonstrates commitment to the views that we took very early on. But taking those views now, I am more chasing the market than I am having thought about it sometime ago and made those earlier calls.