Indian markets can correct 3-5%: Andrew Holland, Avendus

MUMBAI: Indian markets, trading at 22 times one year forward earnings, are one of the most expensive markets in the world. However, Andrew Holland, CEO of Avendus Capital-Alternate Strategies believes that despite the stretched valuation, Indian markets are unlikely to fall more than 3-5%.

"(CBOE) VIX has fallen below 10 which indicates complacency in the Dow. Whenever this has happened, Dow trades at lower levels in the next year. It is hard to say what will cause a market fall but India can't hide if the global markets come down. However, I am not looking at a big crash in the market but a 3-5% fall is possible," said Holland.

Holland manages Avendus Absolute Return Fund, a category-III alternative investment fund, for the firm.

Holland said that economic growth in the US, Europe and Japan is picking up but their central banks remain accommodative, and the US 10-year bond yield is also around 2.2% level.

It is unsurprising therefore that the liquidity gush is pushing markets higher, he said.

However, he does not believe that markets are in a 'bubble' territory, though certain sectors are.

SECTOR OUTLOOK
Among sectors, Holland is underweight on information technology stocks.

On the banking sector, Holland said that the ordinance to tackle non performing loans announced by the government recently is a good news but it doesn't change the way the PSU banks do business.

"They have been losing market share to private banks, NBFCs and micro-finance institutions and will continue to lose market share," said Holland.

Holland is bullish on the fast moving consumer goods space despite 'hard to swallow' valuations.

Headwinds from demonetisation are largely behind and growth in the sector is likely to normalize in the coming quarters, with Goods and Services Tax set to be a 'gamechanger' for the industry, said Holland.

Holland believes the real estate sector will be a 'dark horse' going ahead.

"I see the real estate sector as a dark horse because the focus on affordable housing and low interest rates will give stability to the real estate market and once transactions pick up, cash flows will also pick up, which will be good for the sector," said Holland.