economic recovery: Bet on largecaps as economic recovery looks elusive: Andrew Holland

We have been hostage, a little bit, to global factors February has been a bit subdued. The market was down but we have kind of recovered somewhat as more favourable news or expectation that the virus has been contained started to trickle in. And then you have a more V-shaped recovery from the global economy. The central banks, including the Fed, would be on the sidelines in terms of anything to do with interest rates. You are getting incentive packages from China, Singapore, and Hong Kong, which will keep liquidity very strong for the markets and that is helping our markets as well.

The index is fairly flat today. It is becoming a little rotational again in terms of themes and sectors. There is no real clear winner in terms of sectors at the moment; only the largecaps in each of the sectors continue to do well and that will be the continued theme.

Most people are wondering if it is prudent to invest in midcap and smallcap. For certain stocks, yes, but generally there is not enough evidence that the green shoots that we have been hoping or seeing a little bit are going to play through so quickly. It is going to be a more painful U-shaped recovery. We are still a few months away before declaring that growth is back and therefore really committing to the small and midcaps.

The strategy mostly remains the same as last year which is to keep the best of the largecap stocks in each of the sectors because those deliver growth and will also be defensive in more volatile markets.


What is your view on PUSs? They continue to lag behind their private peers. Are you of the view that PSUs have been a vehicle of mass wealth erosion or do you want to think otherwise?

If I just look at the PSU banks, no one has really tackled the issue plaguing them and the issue is apart from capitalising the banks. Can any of these banks compete going forward? Or should the government just say, after merging, privatising would be one way to unlock value going forward. At the moment, the idea is just adding or merging banks together, no one clearly knows what the strategy will be. And whilst Bank of Baroda has done a good job, it is not competing in terms of the valuations with the private banks. One and one is not adding up to two; it is probably still one.


What is your reading of the liquidity situation?


The liquidity situation has surely improved across the board. A lot of heavy lifting has been done by the RBI in this respect and this is filtering through to the NBFCs now. But that said, no one is going to go gung ho. On the banking side, things will not go back to where they were before. It will happen step by step. This is because everyone has been bruised enough, not just the banks but also the shareholders in a lot of these NBFCs. It will take a little bit longer but the good news is that they are getting liquidity. There is going to be nothing untoward in the very short term and that is what the RBI has said that they will make sure that there are no problems within the sector which will have a spin-off effect on the rest of the banking sector. First of all, you need to have people who want to borrow money. There is also the demand side of it which is slowly picking up. Do not expect everyone to kind of enjoy the benefits of liquidity because there is a demand-side that has to come through. Larger banks and NBFCs that are well-managed and have a strong balance sheet will continue to take market share.