An elevator mechanic wears the Board of Governors of the Federal Reserve System seal on his shirt while operating an elevator at the Fed in Washington. (Photographer: Andrew Harrer/Bloomberg)

Fed Tightening Biggest Threat To India’s Liquid Markets, Says Andrew Holland

Indian equity benchmarks have broken multiple records this year flushed with liquidity. While the long-term view on the market is positive, a correction in the short-term could take the market 10 percent lower than where it currently is, Andrew Holland, chief executive officer at Avendus Capital told BloombergQuint in an interview.

And what could cause this correction? A tightening in the U.S. monetary policy, he said.

As the market approaches the U.S. monetary policy tightening—not just through interest rate hike but also through the unwinding of its $45 trillion balance sheet— Holland is trying to gauge the Indian bond market’s reaction to the move. A tightening would take money out of the bond market, which would consequentially affect the currency and thereafter the equity markets, Holland said.

In the shorter term, liquidity driven markets do throw up nasty surprises and while we haven’t seen anything yet, as the markets keep climbing higher, the risk becomes a lot more severe on the downside.
Andrew Holland, Chief Executive Office, Avendus Capital

Watch the full interview with Andrew Holland here.

Here are the highlights of his views on specific sectors:

Telecom

  • Market has a positive outlook on the sector after Reliance Jio Infocomm Ltd. raised tariffs, giving its competitors a breather
  • Won’t be surprised if Reliance Jio came back with more aggressive strategies to attain market share
  • Wouldn’t invest at these levels. There are better sectors to look at, ones without an aggressive player and with better earnings visibility

Oil & Gas

  • Global demand is beginning to close in on global supply
  • Expect crude prices to reach $70 per barrel in the next six months

Cement

  • Despite no new capacity, mergers and acquisitions in the sector will take prices higher
  • As the economy recovers from the Goods and Services Tax implementation and demonetisation, this sector will get a good fillip

Automobiles

  • Need to be selective as the market has priced in almost everything
  • In case of a slump, the industry lacks catalysts to boost sales

Financial Sector

  • Financial stocks are seeing a high demand
  • Private banks and affordable housing are two areas to look into in the sector

Insurance Sector

  • After the barrage of initial public offers in the industry, everything seems priced in by the market, leaving little upside
  • Performance has been lackluster

FMCG

  • The sector is currently seeing a lot of tailwinds from GST
  • Three stocks under the radar from a global perspective would be Hindustan Unilever Ltd., Nestle and Colgate Palmolive Ltd.