For markets to go up 15% in next 12-18 months, what needs to change? Andrew Holland answers

We have been waiting for this and finally today we heard the ring of a new high for the equity markets. Clearly we have run ahead compared to the rest of the world. Do you believe that PSUs or financials are going to be the sectors that will dominate going forward?
Yes, I think the financials will continue to be the best play going forward in terms of our growth. Obviously as we move into next year, the likelihood of interest rates going on hold elsewhere and emerging markets including India are looking at the first move to reduce interest rates. This is all going to be good for the banking sector.

I would continue to look to this sector to continue to be a leader. Obviously there will be those kind of swings in sectors in between but it is a long term play. As Uday Kotak said, it is in a goldilocks scenario at the moment and until the economy really takes off. One of the things which I am starting to see is the forecast for the economy starting to be reduced and seeing figures as low as 5-5.2% for next year.

So we are starting to see a bit of slowdown and it would be interesting to see how that plays through with the RBI too when it comes out with their next monetary policy but the banks have had a good run and there may be a little pause in between. But we are longer term like for the next few years, bank sector is going to be the space to make some good money.

While we are at the same levels as a year ago, IT, growth stocks, metal stocks, commodities were the toast of the town at that time. Now it is the other end of the spectrum, the banks/ It is value and to some extent consumer stocks. But has the dynamism of the market in terms of the outperformance and underperformance changed?
Yes, it has and this rotation will continue because if you take a view that interest rates will go on hold in the US sometime in the first quarter of the next year, then obviously the expectation will be how the economy will start to move thereafter and what will be the drivers and obviously a lot of the tech stocks in the US will start to be looked at again closely. That will be a favourable tailwind for our IT sector as well.

You will get this rotation continuing and it is going to be the themes that we play in 2023 which will make you the most money. But there will be these times when the rotation in the sectors will continue to play. Commodities remain a spot which will probably remain weak for some time. But IT could be the surprise sector if growth starts to see a pickup as the world economy moves from recession back to the expectation of growth.

For markets to go another 15% from here in the next 12-18 months, what needs to change because a lot of good things are already in the price? Inflation has peaked out, crude is down, China is in trouble, a lot of external factors which are normally supportive have already reversed. So what is next for markets now?
There are two factors. Let us talk about one which is probably in India Inc’s doing; it is earnings and again throughout this year, we have seen earnings being downgraded from those high 20s to near to single digits now. India has to deliver on earnings that is for sure to keep these valuations where they are because there will be disappointment if the market tries to alter out rather than anything else.

I do not think we can keep getting PE expansion at the expense of earnings growth. So, earnings growth is one of the key factors. The other key factor would be any kind of move towards peace in Russia and Ukraine because that will bring down oil prices very quickly and help the building programme in Ukraine which will be good for Europe and good for some Indian companies doing a lot of extensive work throughout Europe.

I think that would be the catalyst for all markets to move up including ours. But net-net, if the consensus is right that emerging markets will be the first movers in terms of interest rates coming down, flows will come but most of the big brokers or multinational brokers have India as an underweight in this scenario. So maybe we will see some underperformance, not necessarily that the market would not move higher but some underperformance against the emerging markets if that scenario plays out.

Would you be playing the crude sensitive theme at all given the significant cool off that one has seen in crude?
It is a shorter term trade at the moment because things could start to unravel positively in China and that would again send the oil prices back up. We are really betting on problems in China continuing to escalate from where we are today. If that is the case, then yes, we will probably see some more upside but it is one way one has to be a kind of quick out of the door in terms of watching the news coming out of China because over the weekend, it was looking more positive and now again it is looking more negative.

So these things will move very quickly and we have to move very quickly in terms of booking the profits or cutting positions. So it is more of a shorter term sentiment trade rather than a long term move in terms where China will be in the next week or so.