The Hindu Business Line : FIIs to stay: Marc Faber

INVESTMENT Guru Marc Faber believes that India has finally become an asset class and that international fund mangers will not desert it entirely, although at some point they may reduce the exposure.

Gold is trading at the highest level in 18 years on Japanese buying. In Mumbai it has touched an all-time high of Rs 7,400/10 gm. Faber says that gold prices are likely to continue to outperform the Dow Jones.

Excerpts from CNBC-TV18's exclusive interview with Marc Faber:

How are you reading the global equity environment right now?

Basically, a lot of this recent rally has to do with the perception that whatever happens, the US will print money and so the asset inflation will continue. If we look back at the last couple of years, then we note some significant divergences in asset markets.

In particular, the hard asset will tend to perform better than paper asset, especially in the US.

In 2000, it took 44 ounces of gold to buy one Dow Jones Industrial and at present, despite the rally in the stock market, it only takes 22 ounces of gold to buy one Dow Jones Industrial. In other words, over the last couple of years the price of gold has significantly outperformed the Dow Jones. I think this outperformance will continue.

Your expectations on where the tightening cycle has reached in terms of interest rates in the US and the global emerging equity markets from here on?

I have maintained the view that in this tightening cycle where global liquidity is somewhat shrinking, emerging markets will not perform particularly well. But I think they can still perform better than the US. In other words, we have outperformance of emerging economies vis-à-vis the US.

Regarding tightening global liquidity situation - Can India within that emerging market space, still continue to attract the attention?

That is correct. We had a major sell signal in the sense that the Japanese were very heavy buyers of Indian equities, and Japanese have never bought anything that was not expensive and usually they bought right at the top of the market. I have another argument in favour of Indian equities in the long run. First, never before in the last 100-200 years has India really been an asset class and now for the first time; India has become an asset class among fund managers globally and they will not desert it entirely, although they may reduce the exposure at some point.

But at the same time, the money that has been invested in India by international investors is very small in the global context.

Are you saying that if we did indeed correct a little you are not expecting to see a sharp slide because of the kind of money interest?

That depends, there are two possible scenarios; all markets in the world, right now are significantly over bought on a near term basis. So they could correct by 5-10%.

At the same time, it is also possible that the result of money printing by Bernanke and the perception of investors that he will print money and that the tightening cycle in the US will shortly end, will result into no correction and maybe the Indian market (Sensex) will rise to 9000 or 10000, maybe even 12000, and then experience a significant set back along with all other asset class.

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