The year 2014 marks the start of a new bull market for Indian equities, believes Andrew Holland, CEO of Ambit Investment Advisors. In an interview with FE's Devangi Gandhi, Holland discusses, Indian market's re-rating potential, preference for cyclical stocks and global events that could impact market sentiment worldwide. Excerpts:
An increasing number of experts are of the view that the recent run-up in the market is a beginning of a structural bull run...
The clear mandate given to the Narendra Modi government confirms our view that 2014 will be the start of a new bull market. This is India’s moment.
Post the formation of the new cabinet, the market seems taking a breather. Does it reflect any discontent with the government structure?
Not at all. It actually gives us a great opportunity to buy.
The market is riding on a lot optimism while earnings upgrades are still to catch up...
No doubt, it would take time for the ground realities to change once policy actions start. Even economic recovery in the US and Europe is led by increased confidence and optimism. Let us take the example of Japan. After Abe was elected, he took actions to revive growth and inflation but the market rallied more than 50% just after him coming to power. So the market always discounts such events and recovery in earnings growth. From a short-term perspective, elevated optimism may be pointing to an overbought market. However, by the end of 2016 we can obtain the earnings growth that it is reflecting, depending on policy actions from the government.
The market rally this year was based on a combination of factors. We've had a good global background, and the only big development that has taken place in the recent past is with respect to Russia. So, BRIC fund managers have preferred to increase their weight on India. Amongst the emerging market universe also India has stood out on a relative basis. India has managed to attract flows, which were not completely India-centric although election-led momentum has also helped.
Which are the three most awaited reforms that could boost the market sentiment?
Get infra projects moving, increase FDI in insurance and push through GST & DTC.
There is a growing argument that Indian market has a potential to re-rate. Would it be supported by higher earnings growth?
We are of the view that the earnings growth in the calender year 2015 could be somewhere around 25%. Operational gearing in some