At the Morningstar Investment Conference 2014, Andrew Holland, Chief Executive Officer at Ambit Holdings, shared his views in a panel discussion on the equity market titled 'What's Different This Time?' The panel was moderated by Sanjoy Bhattacharyya, Managing Partner, Fortuna Capital.
On whether valuations are an issue over the next 12 to 18 months……
I think it depends on your time horizon. What we all do is say, okay, the market is on a P/E of 16, it's on the average over the last 10 years. But I don't think we kind of go three years out and say what's our earnings projection. If you do that then the P/E of the market is way under 10. So, it's still cheap. So you got to go through those cycles of over-valuation in a very short-term.
But if you have a very definitive view of where you think earnings are going to grow over those 3-5 years, then you can say that it's okay if the market is overvalued in a very short-term, I can take risk off the table if I like or you stay invested. Because you know that the earnings growth will come through unless something fundamentally changes.
I'm talking more short-term than long-term... If the market was to shoot up now to 20 times, I'd be worried because it's liquidity-driven rather than fundamentally driven. Our expectations have run so far ahead of fundamentals that no one is seeing any risk.
Two months ago, I think everyone had become a stock picking wizard. I mean everyone I met had some great stocks which they picked and everyone was just putting money in the markets without thinking about any risk.
On the banking sector being a beneficiary of macroeconomic stability returning, and reforms going ahead…
It will be. But actually we have a slightly different theme. So, if we were invited back here in three years' time, and your question is what would have I made money on? What should I have bought? The scene that we're playing on or thinking about all the time is who is going supply India? Now, what does that mean?
So when the government talks about, say, having gas pipes across the country, do I want to buy the owner, like a GAIL, or do I want to buy the manufacturer who is going to supply those pipes. I want to buy the manufacturer of pipes. Because I'm going to get operational gearing from that company, which means it's earnings will not just double, they will quadruple over the next two to three years given the players that we have.
So, you can look across each sector; do I want to buy the owner of power, I want to buy the supplier of equipment; railways, I want to buy the wagon makers, the track makers, the signal makers, it goes across all the sectors of India. So the suppliers theme is going to be the big theme. So in three years' time, we would say which supplier should I have bought.
The banks supply something. But when I've got credit growth of 10% at the moment, I don't need to be in the banking sector. If I want play interest rate cycle, I can be in the banking sector. I don't want to play that yet. There is so much more fun in the manufacturing with operational gearing and who is going to be supply India, that's where you're going to make the big money.
