Do you think the quietness in the markets is a pre-election event?
Andrew Holland: We seem to be in this range, which everyone has been talking about. But interestingly, I have noticed some of the defence stocks are starting to move and construction companies as well. There is a feeling that, once the elections are through, we are going to see a whole bunch of ordering over the three months afterwards, whether it is for defence contracts or construction contracts.
Of course, all these share prices move on the basis that they get new orders and that is why these sectors are starting to pick up again. A few weeks ago, there were some worries about voter turnout; that is less of a problem for the market at the moment. So, everyone is concentrating on what comes after it and, of course, we are going to see a lot of construction contracts being given out after the elections.
What do you think will change the market mood regarding private banking names because earnings-wise it has not been a very big disappointment as such but the stocks just failed to move?
Andrew Holland: It is a case of FII selling and using the banking sector as a very liquid and large overweight or overweight to neutral stance which they had to fund some of their moves into China, which we have been seeing over the past month-and-a-half. So, the banking sector, given its weightage, just falls under that problem of being used as funds for other market. So, I agree with you. I do not think there is anything wrong with the results season so far and if anything once the bank sector starts to move, there is going to be a lot of short covering and there is a lot of buying to make up to some of the positions which have been lessened over the last month-and-a-half particularly by foreign investors.
In this situation would you recommend the retail audience to start adding the private banking names because when it does move, it might move with quite a bit of ferocity?
Andrew Holland: I think the banking sector is the place to be. If you believe the economy is going to continue to grow very strongly, the banking sector would have to perform. The banking sector started to perform after the results and then of course, you have some regulatory moves towards Kotak Bank and then obviously about project financing, which just kind of dampened the sentiment a little bit for banking. But the results season so far has shown me that NIMs compression is probably behind us and that is great news for the profitability of the banks going forward.
What are you making of the entire capital goods and energy play? We saw earnings from both BHEL as well as BEL and they are quite the polar opposites. But it is a different story that the stock pattern may have been pretty much the same. Is it time to get a little cautious here?
Andrew Holland: At the end of the day, whether it is infrastructure or renewable energy, it is all about execution and if they can execute those orders profitably, they will continue to do well. What tends to happen is that share prices move on the order book being increased and I think that will still remain beneficial to that. But when you come down to the end of the day, is it falling through to the bottom line, there is still question marks over that for some of these companies which is why when we look at the kind of infra play, we are probably more towards the kind of more specialized areas where Siemens and say ABBs operate which is smart cities, smart manufacturing, which is better margins and obviously better execution as well.Just wanted to get you in here about this pharma revival, which is currently at play. A lot many stocks have already moved up, case in point being a DRL or for that matter Cipla. We think it is bound to be a more sustainable move and will last longer.
Andrew Holland: We hit bottom some months back for the whole sector and the prospects are starting to look better not just locally but overseas as well. So, I think that has been the good news. The result season has not been fantastic, but it has not been a disaster. So, the narrative coming out of these companies are that things are slowly starting to improve going forward and, of course, if you want a bit of safety in these markets given the volatility, then the whole of the kind of pharma and FMCG pack have come into play in terms of just a bit of safety where some of the earnings have kind of reached towards the bottom and you can see a bit of light at the end of the tunnel going forward. I think that is the reason and obviously there have been a few QIPs and block trades which have got the momentum going for some of these share prices from where they were before.
I do not know if you have been tracking these two stories –Vodafone and Paytm? Is there a disbelief to belief story or trade here at play?
Andrew Holland: For the telecom sector, we are all going to wait till after the elections for the first tariff increase and that will obviously keep the momentum for the sector going forward. But it is not just that one tariff increase; there is the potential for more going forward.
There was always an overhang in stock on Vodafone and now it is still there. Some of the anchor investors may want to dispose of or not and so that will be a dampener on the stock in the short term until after the elections and the tariff increase. Of course, what the government might do with their holdings as well going forward.
As for Paytm, there is still that regulatory overhang. I am just going to wait till I see how all that plays out when the RBI gives it a go ahead to move forward. I am just happy to wait for those things to play out on this stock.