What do you believe about the market mood right now? Is it going to be a lot more sideways till that big event of election is out of the way or even ahead of that one can expect much higher levels for the Nifty?
Andrew Holland: You have pretty much nailed it in terms of saying that confidence is back after that kind of shaky regulatory fall in the small and midcaps. Whilst it is not so broad-based at the moment, the markets have absorbed that and moved ahead, helped by global factors as well.

Again, the momentum in global markets is to the higher side. I saw reports today saying that Europe is looking fine. With China coming back a little bit with some of the data, it just bodes well for the markets in the short term. I still think there is possibility of a pre-election rally given the kind of the positive tailwinds we are getting from global markets and the market is now feeling the confidence again after that bit of turmoil in the middle of March.

What is keeping you busy? Where have you taken chips off the table? Where are you looking at adding more positions?
Andrew Holland: We have been adding more to the banking sector because we have got the results season coming ahead of us and there are two factors that the investors and we are all going to be looking at the confidence from the IT sector.

For the banking sector, the worst is behind us. I still think that for the IT sector, we are not going to get that kind of commentary. I still think the IT sector is more of a play on interest rates coming down in the US which gives the catalyst for the tech companies there. For the banking sector, if we are getting to the point where banks are saying that the worst is over for NIMs and you could look forward to lower interest rates going forward, that is the key and if that was to happen, then the banking sector could lead the whole market higher again.

We are starting to see stability in share prices of some of the larger banks which have been under pressure and are starting to move forward again. Maybe the NIM story is something that is behind us and the banking sector can actually outperform what it did last month. But it has been a huge underperformer for the last six to seven months. I think that would be the catalyst for the markets to have that kind of pre-election rally.Have we not discussed this time and again that just buy banks, and please buy private banks, because they are cheap. They have done nothing. They have good balance sheets. They have good credit ratios. Buy banks and buy both Kotak and HDFC Bank. That is the most consensus comment made across brokerage firms, across sell and buy side, yet nobody cares.
Andrew Holland: I know it is a good point. We have all been sitting there underperforming. But what I would say is that you have taken some of the pain of some of the underperformers. But again within that, through the results season you had that opportunity to make some good money, both on the long side and the short side, that is what a lot of fund managers have been doing including us. So, take advantage of some of these movements within the sector. You might like the banking sector because we run a long-short fund, we do not have to be in love with any one stock, be it either on the buy side or the short side so that is how you maneuvered your way around within the sector and of course then you can look at PSU banks and NBFCs as well as part of that play. So, there is money to be made just not necessarily in some of the large banks in the very short term, but I think that is going to change if the NIM story is going to be stabilised, which I think it will be now.

What has been your favourite, where have you allocated capital which is purely based on Indian mass consumption growing? I mean, what is the best consumer play?
Andrew Holland: Actually, we have been playing the beverages, the premiumisation from both alcoholic and non-alcoholic beverages and I think that is something that has played out very well over the past few years and still a runway which I think has a… it is a very long runway as per capita GDP moves higher and people start spending more,

I mean, I am sure your coffee is from one of the outlets downstairs in your building, so that is where people are heading and people are experiencing more and want to experience more and particularly with the younger generation. If you look at the alcohol companies, it is all about premiumisation, that is where they are getting the big uplifting margins. So that will continue and that is why I feel we want to play the consumer kind of spending because it is still very early days in terms of the move towards premiumisation. It is a great theme, but it is something that is not going to go away from us.

What is your view on small banks? They are not expensive by any yardstick. Okay, large banks have CASA, they have right to win, they are great brands, but the incremental growth in small banks is actually not bad if I look at, let us say, a Federal Bank, City Union Bank, throw in a Karnataka Bank. Quietly but clearly, they are growing at 15-20% which is quite enviable given that largecap banks are struggling.
Andrew Holland: It is and that is why you have seen the outperformance of some of the PSU banks and the smaller banks against the large banks and the concerns on the large banks remain; it is all about NIMs and then the unsecured loans and possible RBI interventions. So that has been playing on investors’ minds.

But it is just a matter of time and that the largecap banks will perform and if the commentary in the results season is more positive that the worst is over, then you will see a very strong rally because everyone has underweighted the largecaps in terms of the banks, and foreign investors have been using the banking sector for redemptions in their emerging market funds of taking money off the table, it is liquidity as well and of course with HDFC as a bank there is a possibility of this MSCI kind of increasing weightage.

That is something the market is continuing to kind of favour and that is why we are seeing this accumulation and stable price move upwards for HDFC Bank compared to the other large banks more recently.

What is your view on PSU stocks?, Last year it was all about the PSU power names, defence names, railways, and even other verticals which were perking up – oil & gas names – to add to that list. Do you think this year one should temper expectations and book profits?
Andrew Holland: It is a great point. The way I answer this is that the sectors you mentioned – defence, railways, oil and gas – are full of PSU stocks. I still feel that in renewables, power, defence and railways, the spending by the government is going to continue. There are no two ways about it.

So, you are led towards the PSU side of the stocks anyway. The long-term theme playing out there is hard to ignore. One has to be in these stocks. I think you need to forget that and say they are in the right sector at the right time where the spending is going on and they will capture a lot of that market share of the new orders. Therefore, whatever ratings you see at the moment are probably way below what they had been in two years’ time with the earnings growth that you will see because of that order surge over the next two to three years.