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    Don’t buy IT stocks now; you will get other opportunities in short term: Andrew Holland

    Synopsis

    “If the Nasdaq falls further,then it will be too hard to move against the sentiment factor against IT in India. It is more of a global factor rather than just a local factor at the moment. We cannot take away the fact that the tailwinds were very strong for IT.”

    In volatile times, cash is an asset class; sit on the sidelines and wait a bit more: Andrew HollandETMarkets.com
    “Overall the markets are going to wait to see what the RBI does in terms of interest rates – whether that is going to put a hold on discretionary spending – in the very short term and what the commentary from the RBI is for that. In the next few weeks, we can get the answers to that but globally we are seeing a slowdown in discretionary spending,” says Andrew Holland, CEO, Avendus Capital

    What is your view on the cement pack and the kind of reaction that we are getting in trade today? Is it a bit of an overreaction and can be looked at as a good buying opportunity?
    It is interesting, firstly for not thinking whether this is the telecom moment in cement in terms of how aggressive Adani might be. Obviously we are seeing capacity acceleration by other companies and the market is worried that the pricing power which all of these companies enjoyed would start to go down as new output gets into the market. So the market is worried about a pricing war going forward.

    We saw what happened in the telecom sector and for investors in this sector, that is being shown in share prices at the moment. Of course, none of them is going to come out and say anything because for many years, they have been investigated for being a cartel. I am sure they are not going to say anything right now. So it is a concern not just for the pricing power but obviously for earnings and stability of earnings over the next six to nine months. That is why the market is taking a harsh view on the overall sector. We saw what happened in telecom, it took years before pricing power started to come back.

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    The Aditya Birla Group has identified a lot of sectors where they are investing but apart from that, we have heard of a lot of private capex around the steel sector as well. Does this augur well for a lot of these industrial names like Thermax, Cummins, L&T etc? Can there be an up cycle in these names now?
    Yes, there could well be. The capex cycle by the corporate sector is something that needs to be looked at a little bit more, because usually we have been thinking about the government capex cycle.

    Therefore there have been the usual roads, bridges etc but one of the things that I mentioned before is that the capex cycle expected in 2023 globally and India where governments and companies identify those kinds of areas where they need to have more resources of their own or security of their own supply. This is going to be a big theme that is going to play out.

    So whether it is the likes of the L&Ts or BHEL or the other companies which are helping to build these new smart factories going forward, it is probably where I would concentrate my research and probably investments going forward on the intensity of that corporate capex. I think it could be very strong.

    The auto sales numbers for May came in. How have you realised the kind of commentary that has kicked in from the likes of Maruti? What have you made of the kind of passenger vehicle and CV sales numbers that came through?
    They have been pretty much in line. Here and there obviously there are some disappointments and the pecking order changes each month. Overall the markets are going to wait to see what the RBI does in terms of interest rates – whether that is going to put a hold on discretionary spending – in the very short term and what the commentary from the RBI is for that.

    So that is a very short term. In the next few weeks, we can get the answers to that but again what we are seeing globally is a slowdown in discretionary spending, I am not saying that India is going to fall into that trough right now but we have been about six months behind the kind of reopening schedule of other countries.

    We might start to see a slowdown as the interest rates start to bite into our ability to spend more money. But I still think the auto sector looks very attractive in terms of valuations.

    What is a good contra buy in this market? Would you say it is IT because the Street has its concerns about where the prospect of IT is going to be in the mid as well as the near term?
    I do not think there is any surprise in that in the very short term because if you look at the kind of correlation between the IT sector and Nasdaq, the correlation has been very high over the last five to six months. When we have this bounce back in Nasdaq over the last week or so, that has had a very positive impact on the IT sector.

    So your call really is whether you think Nasdaq has further to fall in the short term because if it does and that is your belief, then it will be too hard to move against the sentiment factor against IT in India. It is more of a global factor rather than just a local factor at the moment. We cannot take away the fact that the tailwinds were very strong for IT on the back of all of these new companies starting up globally, not just locally and the kind of expansion and efforts that the IT sector has made towards Cloud and in terms of the services there.

    If that slows down and we are seeing it slow down, we are seeing companies reducing the number of workers now, that could have an impact. It is a sentimental impact. I do not think it is the time to buy; I think there will be other opportunities in the short term.

    The reason I am saying that is because I just wanted to mention that on the global front, some of the data coming out of the US is quite big. It could be seen as reasonably strong but the data recently has said that the household sector, which is supposed to be a very strong, great balance sheet, is starting to falter. Now if you only had one or two rate hikes already, you have not had the Federal Reserve reduce its balance sheet, then that is telling you that the downturn in the US is accelerating even before interest rates rise.

    I think this is one of the things that over the next three months will test us and test the markets and that is why you might still see a bit of a down leg towards the technology growth stocks in the US, which will have an impact on sentiment in India.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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