The Hindu Business Line : India at greater risk than other emerging markets: Naissance Cap

What are hedge funds doing at this point in time with their portfolio? James Breiding, MD of Naissance Capital, said since banks have been hit very hard, he will look to buy them. He sees a long term story for commodities and suggests that they could be bought for the long term. It is on the cards to have a further correction of up to 15-20 per cent from here, he added. Excerpts from CNBC-TV18’s exclusive interview with James Breiding: How are you approaching the Indian market right now against the other emerging market pack and what do you make of this oversold zone that we are trading in right now?

Well we are approaching with great trepidation, because it has nothing to do with India. It has a lot more to do with people’s perception about the global credit crisis and the ramifications of that. But our sense is that India among the other emerging markets is probably at a greater risk, because it is a lot underpinned by some of the resources. For example in places like Russia, Brazil, the commodities have held up remarkably well over the last three or four months, which provides some levels of support via the emerging markets.

So, it is a very difficult time right now given the fact that the range of outcomes is so broad, means that there is just a lot of uncertainty. What news we do see coming in, the surprises that we are seeing tend to be all disappointing and there is very little good news coming out.

All of last year, people were actually touting the Indian market as a domestic consumption story and therefore less likely to be hurt by a slowdown or even a recession in the US. That argument obviously is not cutting any ice now. What kinds of lows are you looking at for the index level from hereon?

It is a good question. I think so much depends upon how this whole credit crisis plays out. We still think there is a lot of lobbying going on, which is optimistic as we saw with the S&P statement. But our sense is that the worst is not yet over. There still needs to be a lot of pain to absorb the bubble bursting in the housing side of the US. We think that probably equity markets will continue to migrate to the view of the credit markets perhaps not quite as bad, but still I actually think it will be moving in that direction.

If that happens, we think that one of the next shoes to drop will be FII interest in emerging markets, because it is widely perceived to be a risky asset. What we are seeing is de-risking of portfolios in general.

So, I suspect that it is on the cards to have a further correction of up to 15-20 per cent from here. It is not to be excluded. On the other hand, depending upon your time horizon, you are starting to see some real value in the Indian stocks and if you are able to take a 2-3 year view, it does represent really an interesting opportunity.

What is your approach with regard to the Asian market pack or the emerging market pack in terms of the exposure that you have to these markets? You talked about a 15-20% correction. Are you going to be waiting for that bit of correction to happen before you step in or are you already parking your funds?

But you spoke of some value buys with a 2-3 year or a 3-4 year horizon if I got you right. Which sectors or areas are you looking for such value buys if any?

I think the banks, of course, have been hit very hard. You have seen some of the names that did extremely well the last couple of years; the Reliance names have come off a lot. So, you can just more or less go through and do a chart to see what stocks have climbed more than 50-60 per cent, there is a pretty decent chance you’ll find value in those stocks.

The stories haven’t really changed that much. There hasn’t been really different news. But there has been a slowdown in the Indian economy and that is important.

Are you seeing an end to this commodity bubble or even any kind of relaxing of those prices any time soon?

There could be a bit of a blow off, but it will be an opportunity to buy because I think the long-term story is still valid.

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