The Hindu Business Line : ‘India still a favourite market’

Mr James Robert Horrocks, Head of Research for Mirae Asset Financial group, feels that markets are ripe for a correction. While the long-term fundamentals of markets remain strong, liquidity crunch in the near-term if Fed does not cut rates could trigger a correction. Excerpts of CNBC-TV18’s interview with Mr Horrocks.

Do you think emerging markets are ripe for a touch of correction after their rally or do you still see strength there?

No, the markets are probably ripe for a bit of correction. But the underlying picture still seems very strong. With the cut in Fed rates people have become optimistic about prospects of emerging markets even in the event of a US slow down. I don’t think the credit problems are completely over in the US and Europe. I think that will have an impact on the asset market in Asia. I will not be surprised if we get a little bit of correction but we still have a long-term bull market here.

There have been remarks that after the US jobs data, it may be possible that the Fed does not pull the trigger again in October. That may mean that flows to emerging markets could slow down a bit. Do you agree?

Yes. I was not expecting them to cut as much as they did at the last meeting. The unemployment data has steadied, retail sales figures have been reasonably strong despite a housing slowdown and there is not that big a need, at the moment, to cut rates aggressively. The inflation in the US seems relatively subdued. They are not likely to move at the next meeting. I would expect some of this euphoria i.e. expecting a series of aggressive rate cuts, which has built up in the markets, to die down somewhat.

How do you expect flows into emerging markets specifically a market like India to move from hereon?

Flows may come off a little bit in the short-term. What we are witnessing at the moment is a transition in the global economy. The US used to be the great engine of growth for consumption and that is not going to be the case going forward, if your housing market is subdued and consumer is stretched in terms of their borrowings. Overall, if we take a five-10 year view, the flows into this part of the world from the US are probably likely to increase if anything else.

You are seeing a lot of US asset management companies moving over here or those with presence, building up their presence. For the short-term, when we look at the next few months, you are liable to see a decreasing of expectations in the markets and may be the flows will pull back a little bit.

In the near-term if we do see a cool off in emerging markets, what would be the quantum?

If you look at this as their long-term trend, you could see double-digit falls in percentage terms. But in relation to the overall trend and what we expect to get over the next five-10 years, it is not really going to that big a correction. The best place to be positioned at the moment is areas like food and beverage or areas like the infrastructure sector, where the earnings growth and earnings revisions are still strong. It is relatively transparent and they seem to be fairly well protected in the light of the US slowdown.

How are you gaming the dollar from here on?

Our best case remains for a weaker dollar. I don’t think the dollar will weaken as dramatically as it has done over the last three-four years. But you should underwrite in your investment expectations a gradual depreciation of the dollar. The Fed will be weary of a situation where the dollar starts to dramatically turn down and that is not what they want. The implications for long-term interest rates in the US could be quite dramatic and that would have a huge effect on the already indebted homeowner. They will want to see a gradual, slow depreciation and that is pretty much the Goldilocks scenario for the Asian markets.

What is your call on India now?

India is looking pretty reasonable. The region has been driven by two big markets — China and India — at the moment. .

If we had to make a relative call at the moment, I would probably have a slight preference for India.

The reason being that the overall profitability of Indian companies is much stronger.I think India has a much stronger domestic consumption story than China, so your inability to play that story in terms of the quality of the stocks there is much greater than in China. India has gone on a strong run but it remains a favourite market for us.

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