You can invest in defensives or even better, keep sitting on cash: Andrew Holland

But even if one looks at defensives, the FMCG companies are going to be hit by higher input prices and so margins will take a hit because they are passing on all the higher input prices. Earnings will likely be cut over the next few weeks by analysts. So even if you are hiding in what would usually be a defensive sector, because of the Russia-Ukraine war and because of higher input prices,earnings will be cut for a lot of these companies. That is why I am saying if you got some cash, it is not a bad place to be.

The overall story of autos is getting challenged. The February auto sales numbers are down. FADA is talking about how higher fuel prices are likely to hit two-wheelers and they are even changing their outlook to negative from neutral due to the Ukraine war. Is there a lot more pain in store?
It is a kind of perfect storm for the auto sector at the moment and there is no way one can see that easing, given where we are today. The only way forward would be some kind of compromise being reached in the Russia-Ukraine conflict. Unless there is some kind of peace talk, commodity prices could get even higher. That is the problem facing the auto industry.

Also, increasingly with inflation in India eating into our own spending, at some point the likelihood for discretionary spending may ebb away in a very short term.

All of these would be shorter term factors. But certainly earnings would have to be brought down for this sector. So whichever way I look at it, across India, apart from maybe the metals and oil companies, earnings are going to be under pressure for the next quarter at least until we get some resolution.

But is it a perfect concoction of events coming together for the IT sector? It is a defensive sector. The fundamentals are strong, the commentary from the management has been good as well and the overall worry regarding the cost of capital going up is also tapering down, given the Fed comments. Would that be a space to hide right now?
That is one of the prefect places to hide as all of the things you have said make sense and will probably work out in the short term. But again how long this problem persists is the issue. You have to question, is Europe facing stagflation right now and would later slip into recession? If this continues, obviously that would drag global growth and hurt all sectors. But on a relative basis, IT is a place to hide.

What’s happening in the banking space? Is it just the global impact of the bank selloff which is happening across Europe and the US along with FIIs outflows or are we missing out is something fundamentally? The economists and analysts are all positive on the sector!
There are two parts to it. You have correctly mentioned one of them which was obviously FIIs selling and if it is an index fund any banking has a large weight in the Nifty and other indices. So there is bound to be some pressure there.

But I think that pressure was already been there because of two things; one, there is a lot of new technology and fintech companies coming through which are starting to eat market share away from the private banks. Secondly, if GDP forecast has to be reduced, then obviously this has an impact on the banking sector as well.

I am sure companies will think about sitting on their hands at the moment in terms of any expansion or taking up loans and therefore one would see a slower loan growth going forward. Even on the retail side, if interest rates are likely to move higher which is the case or expectation, it might just have people hold off from making those extra purchases or loans from the banks. So that is the second factor in terms of just demand for loans. But I think a lot of it is to do with foreign selling and the weightage that the banking sector has.

We have been flagging off the impact of the rising crude prices and fuel prices weighing heavy on the cement sector. Do you believe that there is a little bit more pain in sight on account of this news for the largecap and midcap cement stocks?
Yes I think it is. At some point, the markets are trying to price in some of the commodity price increases and the input costs for a lot of industries. But I still think there is probably a little bit more to go because up until three-four weeks ago, everyone was expecting that with the likely capex plan that the government and private companies had, the cement companies would still have that pricing power.

I think that pricing power has been taken away from them so it will be heading for a margin hit because I do not think people are going to pay the kind of prices which they would need to increase. That is going to be again a shorter term margin hit and reduction in forecast by analysts and that is what the market is trying to price in at the moment.

Overall what we got to think of here is that it is where the market is pricing in some of this bad news. But the problem is that there is no end in sight at the very moment to say prices of commodities are stabilising or still could ratchet it up if the tensions are raised over the weekend. That is why a lot of investors can take money off the table and always come back to these sectors once the dust settles a little bit more.