The whole investment landscape would throw up many different opportunities but these may not be the traditional companies, says Andrew Holland, CEO, Avendus Capital. What is your outlook on the kind of momentum that we have been seeing in the markets of late? There have been aberrations along the way but do you believe that those will be flash in the pan movements or are we in for overheating in the markets and a reversal in the trend line?When our market hit highs, it coincided with global markets hitting the highs. There was momentum and valuation is at its peak. From the highs of the month, we have corrected by 4-5%. I suspect it is going to be a little bit more volatile going forward, the reason being that there is a tug of war between inflation worries and people saying nothing to worry about. The rise in commodity prices, container shortage etc are more transitory in nature and I do not expect them to keep on rising. Inflation is probably going to spike up a little bit. One has to see if employment is going to pick up towards the summer as lockdown exits start picking up across the world. If people have more money to spend because of savings, that could push prices higher and inflation could come a lot quicker. That is where I would have some concerns. Between now and probably the next few weeks, maybe the inflation story will die down. The Federal Reserve Chairman Powell was very good at talking down bond yields. I am sure the ECB will do the same and our own RBI will do the same as well. It is okay for inflation to tick up and we are going to remain accommodative. But at some point, the market is going to start to say when interest rates could possibly rise. It is not just that the central banks will increase rates but in the marketplace, borrowing costs will rise. A lot of companies, particularly in the US and Europe, who have got huge amounts of debt, would not be very happy with this and it could cause a lot of problems for them. That is the risk we see which will lead to a bit more volatility in the very short term. How are you looking at the overall EV play for these auto majors? Is it a still a long road ahead or is ndia gradually embracing newer technology and adapting to EVs?It is something that we have been grappling with for some time now. Who is going to be the winner? I do not know. Is it Tesla? Is it someone else in the US? Is it Mercedes. Then we come to Indian companies as well. We are still in a little bit of danger at the moment. We know that many players are trying to make electric vehicles. They are all going to need parts. So I would rather play the electric vehicle market or potential market through the parts players at the moment rather than saying X, Y, Z is going to be the winner because technology changes so quickly and we are still grappling with the pricing. The part players who are supplying locally or globally are going to be at the forefront of the technology. That is the way we are looking at the EV industry.How you are positioned in some of the quasi FMCG plays like Tata Consumer. Would valuations along with raw material costs going up impact their margins after a point?The broad sectors which will push the market higher over the next one year are banking, industrials, energy and consumer discretionary. It is quite interesting that Tata Consumer is replacing GAIL in that respect because I would say that energy or energy related stocks like GAIL will be back in the index at some point going forward. A lot of those consumer discretionary companies will remain in Nifty but I suspect in two years’ time, we will have a different set of constituents in there. I like the consumer discretionary area and I think that in the very short term, they might not be able to pass on some of these prices but as the lockdown eases, people have more spending power as employment will pick up. Consumer discretionary remains a very strong growth area and earnings will continue to be upgraded over the next one year. What is your outlook on the capital goods sector?I have been in India since 1997 and I think prior to the last Budget, I only remember Chidambaram’s Budget in 1998. I think it was exciting. So I can now say that I have seen two Budgets in India because I think the finance minister ticked all the right boxes. The economy is picking up and she has invested money in those parts of the economy and industry which have a multiplier effect across many different industries as well and that is the exciting part. So just as the growth is picking up, you get the extra kicker. It is something we have been asking for since the pandemic and even before that and she has delivered. The whole infrastructure space is going to be very exciting over the next two years. It is going to be different this time around for a number of reasons; one, in terms of clean technology. So it is going to be different in terms of what the investments will be and I think we have to look at different areas of infrastructure and not just traditionally think about roads and so forth. When you think about energy, it is renewable energy like solar energy that is going to be the beneficiary. The whole investment landscape would throw up many different opportunities but it may not be just the traditional companies. The beneficiaries would be ESG companies. So what the finance minister did is great but do not look at capital goods in the traditional way because there is going to be a difference in how that money is going to be spent by the government going forward.
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