Earnings likely next trigger for market; betting on new age tech cos: Avendus Capital

He further mentioned, “The next trigger to take the markets higher or lower could be the earnings season, not just for India but globally as well; because with Nike’s results yesterday, they were complaining about the Vietnam factories being closed. So, a lot of companies are facing shortage of goods, which is pushing prices higher. So you know, that will impact earnings at some point. So, someone is going to hurt, it's either the consumers who will have to pay more, which is inflationary or companies will have to take a bit of a margin hit.”

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“So, the earnings season will give us a good idea of how companies are coping with the problems that we are seeing, whether it's from chip shortage to increased freight costs, to shipping delays. So, there are lot of problems out there which are just being ignored,” Holland added.

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On being asked if the current market run has all the ingredients of 2004 to 2008 bull run, he said, “I think there are two differences so far. One is that the PE of the market is not 8 times, which it was in 2003 and every year between 2004 to 2008, you had at least a 10 to 15 percent correction in the market but we haven't seen any significant correction in the market so far. We are talking about buying dips, but you are buying on dips with the market only being down around 2-3 percent and that is sort of a significant pullback.”

Holland further mentioned, “If we saw a 5- 7 percent of pullback, which is possible globally, I think we are overdue for some kind or form of pullback in markets. That will be the litmus test again, in terms of what investors are feeling at that time and what risks they are facing. But in terms of 2003 to 2008 comparison, what I would say is that in that period, you had quite a number of new sectors emerging such as IT, pharma, which became the bellwethers afterwards. For India, it is going to be the tech companies - the new age companies coming to the markets, which I think is going to keep this index higher for a lot longer.”

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“Therefore, valuations, even though in comparison is a different world, it's a different set of companies, which are going to be pushing the markets higher. For example, if you take banking, while we always look at private banks with PSU banks, there is a whole new wave of companies in terms of asset management, insurance, which I am sure will take a larger percentage of market weightage within the financial sector. Those are areas which I think investors are concentrating more on at the moment,” he added.