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    No extra catalyst at the moment to push market higher: Andrew Holland

    Synopsis

    “We are going to see further downside from here but the scenarios keep playing out week after week or month after month. Sometimes, it is more of a goldilocks scenario and there is a more dire recession scenario. This is going to continue into the first quarter or particularly into January.”

    Andrew Holland-1200ETMarkets.com
    “At the moment, I am seeing downgrades to earnings, worries about growth and if you speak to companies, they say they are starting to see a slowdown themselves. I think that is why the markets are kind of jammed into a trading range at the moment because there is no extra catalyst at the moment to push it higher because of the valuations,” says Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies LLP

    Would you be buying into this winter chill in the market or do you think that we are in for an extended winter in the capital markets for the next couple of days?
    What we will see in the next couple of days or as we move into the new year, will be in contrast, reflecting on how we were thinking coming into the current year and patterns of the same problem will be seen that we saw this time last year. The Fed chairman was saying that inflation was transitory and the market was betting against that and going into 2023, we are saying the Fed is getting interest rates wrong and the market is betting against that.

    All that just keeps the market volatile because there are three scenarios; there is stagflation, there is disinflation or deflation and there is recession. The market is going to try and find a way forward. In all of that, yesterday’s surprise announcement by the Bank of Japan, adjusting its control of bond yields in a slight move away from its ultra-easy monetary policy. That also threw a different kind of problem into the global bond markets.

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    I would say that we are going to see further downside from here but the scenarios keep playing out week after week or month after month. Sometimes, it is more of a goldilocks scenario and there is a more dire recession scenario. This is going to continue into the first quarter or particularly into January.

    What could be the trigger for the Indian markets? Let us look at what markets thought would go wrong. That list has changed; crude is back below $100, the rupee has stabilised, FIIs are back, inflation has peaked out, earnings are doing okay and banks are reporting good numbers. What could be the next big trigger to generate an upside momentum?
    Because of all those things that you mentioned and which have reversed, it has led to India being one of the best performing markets globally. That is pretty much priced in and a little bit more in terms of the defensive nature of our market and the growth that we are going to have going forward is already in the price.

    So what could be the catalyst for the Indian markets to move higher are two things in my mind.

    Any kind of move towards peaceful settlement in the Russia-Ukraine war would have a positive impact on all markets but particularly India because it would lower commodities prices. Two, when interest rates start to fall, India has the opportunity to bring down interest rates a little bit quicker or a lot quicker than they do in the western world. Those will be the two catalysts I would see helping our market move.

    But all I am seeing at the moment are downgrades to earnings, worries about growth and if you speak to companies, they say they are starting to see a slowdown themselves. I think that is why the markets are kind of jammed into a trading range at the moment because there is no extra catalyst at the moment to push it higher because of the valuations.

    One trend for 2022 was sector churn and by the end of the year, we are again seeing a bit of a sector churn wherein the beaten down sectors like pharma and IT are making a comeback while the entire opening up theme and other names are under a bit of pressure – be it auto, media etc. Is it finally time to look at IT and pharma?
    No, not really. On IT, I am still of the view that we are going to see an impact on tech companies in the US and that would just have a negative impact and implications for the IT companies in India. I think the valuations are looking better but there is still a way for them to go down yet.

    But on pharma, I am a little bit more optimistic but this is not a catalyst to get in there and buy them as a theme going forward. It is a place to hide but there is no real theme that I can play in pharma, apart from domestic pharma.

    So for 2023, what merits a hold and what merits an avoid?
    I cannot really talk on stocks but the themes have not really changed for us and we continue to recommend that the global theme is going to be capex and it is going to be in those areas dealing with filling security gaps in terms of supplies of semiconductors and electronics. All are going to be big new industries going forward and we have to look at who builds those plants. It is not the typical L&Ts and BHELs in terms of highways and roads and everything else. It is going to be ABB, Siemens and Honeywell which are going to be the beneficiaries of this capex cycle this time around.

    Then consumer spending will continue and so domestic plays in terms of hotels, travel will do well. We have all faced travel problems recently and we know that people are travelling more. It costs more to holiday in India than outside India so that is the good news for the hotel industry and airlines and another theme that we will continue to play will be renewables and defence industry.

    Nothing has changed. We have been speaking throughout the year in terms of themes that will play out in 2023. The other theme that we are going to look forward to is that deflation would play a big part in 2023 and then the banking sector will be a big beneficiary if interest rates fall.

    Markets have sold off today because markets are worried about the spike in Covid numbers in China, Brazil, Japan and even the United States. God forbid, if the Covid numbers swell up and there is a surge and a spike, could that lead to mild profit booking or serious nervousness in the market?
    If you look over the past month or so, the number of cases inside South Korea and Japan have been less than 100,000 and in Japan it has been typically around 1,40,000 plus every day. It is not that we are waking to something new here. I think there is a lot more noise around China because it is reopening and the number of cases are rising.

    There is just precaution around that and it is a big concern but that is not what people are saying at the moment. I think it is more to do with the worry whether it will have an impact on factories, people working and people travelling, people moving around in China rather than let us say a medication at the moment.

    Bbviously everyone needs to be on the guard and that is what our government is saying too. But I do not think the market is overly worried about that because when we have seen countries open, you do get that spike initially and that is probably what has been happening in China. But of course, the details are very scanty in terms of how many people have actually contracted Covid and the situation there. I think at the moment, it is more to do with what the impact will have on China in terms of reopening because that has been the trade that people have been trying to play over the past two to three weeks.



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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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