Why Andrew Holland Is Still Betting On Large Caps

Large-cap stocks remain the best bet within India’s equity market despite their high valuations, according to Andrew Holland, chief executive officer of Avendus Capital Alternate Strategies.

While India is going through an economic slowdown, with GDP growth falling to 4.5 percent in the quarter ended September, Holland expects signs of a revival around the second or third quarter of the next financial year. This revival will first show up in the operational performance of large-cap companies, he said.

“Because the economy is going around 5 percent GDP growth, the small- and mid-cap companies are obviously suffering in terms of operational gearing and cash flow,” he said. “So they’re not in a position to fight their way through the slowdown as quickly as the large companies.” Smaller companies will also see a revival, but significantly later than the largecaps, he explained.

Another reason is the flow of foreign funds. If foreign inflows are passive, they will replicate the indices and largely the 10-12 stocks that are being bought into, Holland said.

Key Highlights:

• Crude oil prices have spiked amid U.S.-Iran tension, eventually will impact consumers.
• Global growth will start to pick up, India should witness FII flows amid this.
• Just a handful largecaps have been moving the Indian markets.
• Mid and small companies are struggling amid slowing economic growth.
• Expect small and midcaps to witness a “U-shaped” rebound.
• Expect Indian equities to show signs of recovery post six months or after financial budget.
• Private capex cycle has been subdued for very long.
• Expect private capex to pick up in six months.
• Seems there’s lesser case for escalation in the U.S. Iran issue.
• Crude will come off because there is low demand.

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