Global equity markets have been rallying in the past few months as the easy money policy continues and the US Federal Reserve keeps putting off a rate hike. Ambit Investment Advisory CEO Andrew Holland says there is now a concerted move by central banks to get yields higher. Sharing his perspective on India, he said if interest rates are heading lower over the next two years, then equity returns will be higher than debt returns going forward.

Markets have been trending at higher levels. But the move has been incremental. What are you making of the recent movement in the market?

No, the market rally has been intact. Globally, we have been enjoying a great rally. But there have been a few warning signs now. You know a lot of the Fed commentators talking about the possibility of rate hike in September. But the data do not support that. Then you had the European Central Bank saying that they are not going to extend the QE. I think it’s a move by the central banks to move the bond yields higher. Even if you read Fed chair Janet Yellen’s statement that she is concerned that yields were so low globally. We heard the same statement from the German Finance Minister. If on September 21, the Bank of Japan again does nothing then the yields could go higher globally. And that probably will take the risk-off trade on a full swing — it’s going to be the bond market first and the equities market later. So I think we are getting closer to that scenario. And there is a concerted move by central banks to get yields higher. It might not be reflected sometime in the indices because higher yields are supposedly better for banks and banks constitute reasonable weighting in the global indices. So don’t fool yourself that we are not seeing any kind of big fall in the market. There could be a rotation out of some of the sectors into the banking sector on the back of the high-yield expectation. So that could force investors to rethink about this liquidity-driven market.

Coming to some of the long-term investment issues, mutual funds often advise to invest through Systematic Investment Plans for a longer time. If we look at airlines and infrastructure, the law of extinctions and diminishing returns ensures that some of the companies are gone. How should we invest in India on a long-term perspective?

The good thing about SIPs in terms of investing is that you could be buying during the high now and you buy in the middle of the range and during the low. Over the period, if the markets trend higher, obviously you make some money over a very longer term.

So, I think SIPs are a very good way of investing in the longer period. If you are buying mutual fund today, then obviously you are thinking that you are going to get some returns in the next three years. So as investor you can look at certain themes.

But those themes can be in favour for some years and fade away. That is what we are seeing now in case of IT and telecom, which were favourites 10 years ago and are now under considerable pricing pressure. As hedge funds, we are after positive returns even if the market up or goes down or moves sideways. So, our perspective is slightly different from investors having a long-term horizon.

Do you see further emphasis coming back on equity as an asset class globally? The level of doubt we had some time back has evaporated now?

If you think about an asset class, then you have to decide on what amount of money you want to have in debt and where do you see interest rates heading to. If interest rates are heading lower over the next two years, which I suspect will be the case in India then obviously equity returns will be higher than debt returns going forward depending on the time horizon. So, therefore, more money will go towards equities over the longer period. That’s what you see globally anyway and I don’t see anything different in India. Gold has become less of an asset class in India and equities will continue to enjoy flows going forward.

You will have bouts of nervousness and markets falling as we saw in January and February. You will have the volatility. As long as you can live with that volatility, it’s going to be okay in the longer time.

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