Investment Strategy: Do you want to spend money? Wait for Fed results on March 22: Andrew Holland

“I expect this quarter to see big returns for the banking sector in terms of earnings growth, so I’m less concerned about that. So it’s a sentiment factor rather than a fundamental factor that you would certainly have for the banks at the moment. I think no, there is nothing to worry about in the banking sector,” says Andrew HollandMANAGER, Avendus Capital Public Markets Alternative Strategies LLP.
Are you worried about the fall in the US equity markets and the kind of bearing and coupling that might have or the cascading effect on Indian banks themselves?
I think there are a few points here; one is, let’s not forget that the Dow or the S&P are not that far off their highs in general. So I wouldn’t get too worried about some of the setbacks we’re seeing.
In Europe, although you mentioned earlier that it’s down today, some of these markets have hit new highs again. So they are coming after a very strong run in the first quarter of the first months of the year. As for our banking sector, it would just be a feeling. Obviously, one can extrapolate if rates go higher in the US, then the RBI is likely to follow suit. Would that dampen the credit growth we all expect from the banks? I expect this quarter to be another good return for the banking sector in terms of earnings growth, so I’m less concerned about that. So it’s a sentiment factor rather than a fundamental factor that you would definitely have for the banks at the moment. I don’t think there is anything to worry about in the banking sector.When do you think is the right time to buy into some of these expensive consumables?
It depends on what kind of time horizon you have. I only want to hide at the moment where the markets are. That is where you will get the relative outperformance and as the markets fall. But for now, we will be in this range until the Federal Reserve makes their decision on March 22nd. So it’s really just a place to hide in the very short term.

If I was trying to deploy money at the moment, I would just wait until the 22nd and then take a view from there because that will give us an indication of where the markets are going, which sectors will be best to be. riding through on the short side or the long side. Valuations in the sectors but also for India are still relatively high.

You may also see some downward revisions to earnings across some sectors in the next few months because we are starting to see a bit of a slowdown in growth in India in a very short-term phase over the next few months. Those who play as well, and of course, with the RBI likely to raise rates, that will keep the markets in range for now unless the Fed does something more drastic either to raise rates or not raise rates as much as the market expects.

What is your view on this HUL royalty issue?
As usual, they have done it in such a way that they get technology or know-how that they have spent a lot on in Europe. So they just pay a fee for what makes sense. If it will help your margins or your volumes or your new product development, then that is an important form of leverage you have compared to other local companies in India. So I’m not too worried about those things because they’ve been very open about it. It hasn’t been snuck in. It has been said that it will happen.

But of course they will need to provide some more details about exactly what they are getting for this additional royalty to excite the market that both revenues and margins will be positively impacted going forward on the new product line that they will be introducing. If they can deliver that, then the market will be fine. It doesn’t really need to be overly concerned as it would have happened in the past with Unilever.

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