“The numbers reflect many different things at the moment but they have been okay. Margins have been under pressure but the way to look forward to the auto sector is to view that inflation will come down and the Fed rate hikes will go on hold,” says Andrew Holland, CEO, Avendus Capital.
We are seeing the start of another move perhaps to an all-time high. With Nifty at over 17,000, would you get a little bit cautious?
It has been a good run. The market retraced all the losses we saw in June and there are talks about the Federal Reserve being a little bit more dovish on Wednesday. There is an optimistic view that we are through the worst of problems. The Federal Reserve has increased rates during the summer. In the US, there is a technical recession. This has happened while we have not really seen the impact of interest rates.
It usually takes three to six months to start feeding through to the economy and we have not really seen the problems of reduction in balance sheet, which will escalate in terms of the reduction in September.
I am still worried about those unintended consequences of rate hikes and liquidity squeeze. As the US economy has seen two quarters of technical recession, the underlying economy is obviously very weak.
Before those rate hikes, the markets have been a little complacent in that respect and so the rally might continue a little bit more. The dollar is weakening and all these Goldilocks scenarios will be thrown out as a reason for markets to move higher. We are not out of the woods yet. At the moment, I remain cautious.
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With a good monsoon this year, we are expecting an impact on tractor sales coming in. What are you working with when it comes to auto majors and auto sales numbers?
The numbers reflect many different things at the moment but they have been okay. Margins have been under pressure but the way to look forward to the auto sector is to view that inflation will come down and the Fed rate hikes will go on hold. If that is the case, then commodity prices which have seen a reasonable rise, will continue to fall. That is a tailwind for the auto sector going forward and so we like this sector.
It has had a reasonable kind of pickup but as you get through this and more investors look not just at the core business but also to the move in EV as well, it is going to be significant.
I went to the Mahindra store the other day. I had a look at the seven seater and I just asked what the price was. Before he could tell me the price, he said there is a two-year waiting list. There is obviously very strong demand for the sector and if over the next two years they deliver all of those cars and the input costs fall, then margins are going to be very good for Mahindra.
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