The Hindu Business Line : 2007 can see some more volatility: Demeter Advisors

Arindam Bhattacharjee, Director of Demeter Advisors, sees value emerging in select pockets. Demeter Advisors sees some more volatility in 2007. It is currently underweight on India; however, it could increase its allocation later.

Excerpts from CNBC-TV18's exclusive interview with Mr Arindam Bhattacharjee:

What's your take on the kind of correction that we have seen in India and other emerging markets ?

The sense is markets had become very frothy, a bit exuberant earlier in the year or maybe towards the end of last year. So this, we see as fairly healthy correction in markets, obviously as you know nowadays when these corrections happen they happen very quickly. So we seem to be getting a lot of that correction in a very short period of time. But I think in the general sense it's probably a good thing.

Where do you stand on the valuation argument that has emerged in a market like ours?

I think valuation argument was the biggest concern for us. Fundamentally, we are still fairly positive on emerging markets especially something like India, which still looks fairly attractive on a long-term basis.

But I think earnings growth expectations and valuations were running ahead of fundamentals. Fifteen per cent correction is obviously a very healthy correction, I think we are not quite volatile, we probably bounce around a little bit but we are beginning to see some value emerge from otherwise a fairly exuberant market.

What kind of level would be quite attractive to go out and buy for you when you said that it's not quite done yet?

Selective counters, we are getting close to it, if you are asking me generally on a market level it's always hard to do that. But if you tell me that we see another 5-10 per cent correction from here then that would start to look quite attractive given a longer-term horizon and that we still believe the economic fundamentals, the corporate earnings growth is likely to be reasonably strong.

How are you feeling generally about the emerging markets space both in terms of flows and earnings performance?

I would be very surprised if 2007 is a repeat of 2006 or 2005. Generally, I think we have seen emerging markets become very popular from actually being very unpopular 7-8 years ago, and obviously nothing goes up in a straight line. Clearly, people were ignoring a higher risk environment globally, interest rates are increasing, there are geo-political risks that are increasing, there are a number of issues that are incrementally negative.

How do you expect the global cues to pan out in the later half of this year both in terms of the US and the Chinese situation?

Those two are much harder questions to answer frankly. The US is something that we have not been terribly worried about a significant slowdown. We had expected somewhat of a slowing but we were not in the camp that we would see a significant recession and we continue to be in that camp. China is something we actually have been baffled by the growth and the continuation of the growth at this pace over the last 3-4 years.

We feel that growth at some point will moderate, nothing to worry about crash and burn, at least not until after 2008 when the Olympics are there but this level of growth is not sustainable.

For the money that you are running in India at this point, how much cash are you sitting on?

We typically, given our view of long-term fundamental investing, don't sit on a lot of cash; we are not very good at market timings so at this point probably we are on 3-4 per cent cash.

But we do have the ability to change allocations to countries so if thing looks very attractive in India, for example from a fairly underweight position, we could go overweight which would mean a significant change in our allocation.

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