Expect the market to rally more toward Budget date: Andrew Holland

Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies LLP, says the market might be held up and we might just have a push higher toward the Budget. Two of the big sectors like IT and banking have seen a strong run in the very short run. Other sectors like FMCG are probably helping to push the market higher on the basis that there could be more government spending to help the rural economy and therefore that would have knock-on effects in other areas as well like affordable housing, affordable housing finance companies.


The Budget is on July 23rd. Are you anticipating any pre-budget rally this time around or do you think the stocks have already run up quite a bit and expectations have been built up already?
Andrew Holland: I think it is the latter. The market had a great run after the election results and the initial weakness. The banking and the IT stocks led the way. What I think could happen now is that the market might be held up and we might just have a push higher towards the Budget. Other sectors like FMCG probably helping to push the market higher on the basis that there could be more government spending to help the rural economy and therefore that would have knock-on effects in other areas as well like affordable housing, affordable housing finance companies.

So, these are the sectors that could help the rally given that we had a pretty strong run for two of the big sectors which is IT and banking in the very short run. So, I would not expect a big up move from here, but I think we could see a bit more of a rally toward the Budget.

The markets seem to be looking for areas that may not have done very well, providing the comfort of non-performance if I can call it like a consumer but with sparks of green shoots like we saw some in the quarter gone by. If you add a dash of Budget tilt, there is a pretty trade sitting out there. Is that the kind of way people are looking at the consumer space?
Andrew Holland: Yes, I think that is it. You have nailed it in terms of that is the trade. If any sector has the momentum moving forward in terms of what expectations are moving towards in the budget and more spending to get the rural economy going and of course, the monsoons are proving quite okay. So, that would be the trade that we would look at. But on a more sustainable basis, I still like within that consumer basket is the beverage sector because I think you are buying into the premiumization story which will have many years to run. But all of the consumer stocks will probably have a run ahead of the budget.

What are your thoughts on power sector financiers? Well, while the valuations of renewable financiers like IREDA are questionable now after 6x returns in almost six months. But PFC, REC, that pocket has a very robust business model with not so stretched valuation. How are you playing this space, the power financiers?
Andrew Holland: We are kind of trading them more. We like the power sector overall because we do feel and what you have said that the government will continue to spend money, it is a global factor on renewables and of course, given the power deficit that we have in India, we are going to see a lot more orders, we think, particularly on the wind side of the power order frames.

I think the power finance companies are going to have to be there to help get the financing going. I would play more with the longer-term power companies and probably trade the financing companies.

Up till now, the focus on the power cable side was real estate-led or consumer kind of powers, RR Kabels and Polycabs of the world. But now the word is that because of such a massive thrust on power generation, the high KVA power cable story could also come out. Do you play the power cable story anyway in your portfolios?
Andrew Holland: No, we have not actually. I would like to see the government wording first before starting to take that kind of view. So, no, we have not played the cable side of it.