Midcap Stocks to Outperform Sensex, Says Andrew Holland

Andrew Holland, CEO of Ambit Investment Advisors expects broader markets (mid cap stocks) to outperform in the near term because the pick-up in domestic economy will benefit these stocks. They also have valuation comfort as compared to large caps, he said. (Watch)

He asked investors to stay away from the telecom sector. "We have to see how the entry of Reliance Jio is affecting the industry. We see more consolidation in the industry. We have just seen some in case of Idea Cellular," Mr Holland said.

He expects foreign institutional investor' flows to India to resume in 2016 after US Federal Reserve increases interest rates this month.

"We might start to see better flows in the new year once the Fed increases rate in December," he said.

Emerging market currencies and equities have been under pressure ahead of the likelihood of first rate hike in the US in nearly one decade. The Indian rupee is trading at two-year lows amid an exodus of foreign funds from equity and debt markets.

Mr Holland says aggressive rate hikes in 2016 are unlikely because the US economy has not become strong enough to justify that.

The US dollar, which has been strengthening on the back of a rate hike expectation in December, may weaken against emerging market currencies in 2016, he said.

"This(weakening of dollar) will be positive for the emerging markets as we will see incremental flows to emerging markets and India stands out as one of the best emerging markets," added Mr Holland.

He expects corporate earnings and economy to pick up gradually in 2016 as government spending on roads, railways and other infrastructure sectors propels the economy.

The passage of goods and services tax (GST) Bill will be the next trigger for markets, Mr Holland said, though he added that the GST is unlikely to boost the economy immediately.

"Government's spending on roads, infrastructure and Railways is probably going to add more to GDP than GST," said Mr Holland. He expects the GST implementation deadline of April 1, 2016 to be pushed back.