Patrick Legland, head of research, Societe Generale says despite the recent sell-off in the Indian equity market, global investors continue to be positive on the Nifty. Although he doesn't rule out some more correction, Legland, in an interview to CNBC-TV18 says he sees appetite for the market in the medium-term.
Meanwhile, Legland remains bullish on US markets, adding Japanese markets are good for the short-term. Japan markets, he says is certainly a very risky bet because of what is happening in the yen. "It can be quite dangerous for the next few quarters, but for short-term we are positive on the Nikkei," he says.
Also read: Nikkei rises above 13,500; investors wary of going short
Legland, however, is bearish on gold. He expects it to be at 1375 an ounce by the year-end.
Below is the edited transcript of Legland’s interview to CNBC-TV18.
Q: What is the mood out there in the dealing rooms? Do you think that after some kind of catching of the breath of yesterday's rally? Are the markets still looking to add risk assets?
A: Yes, they do. On one side investors obviously remain quite cautious on the European economy, but on the other side there is still some appetite for European risk assets as we saw yesterday. There are a couple of elements responsible for this. Firstly, European investors expect the US to recover and have a positive on the European economy.
Secondly, there is also the expectation that European Central Bank (ECB) at some point will try to take non-conventional measures to support European growth and gross domestic product (GDP). Overall, all this is positive for risky assets.
Q: You expect the rally in the US and on the Nikkei to continue for a bit. We have seen the US indices going to new highs, will the pendulum swing further on this in favour of the bulls?
A: In the US, we have prospects of a very strong second half with a growth of roughly 3 percent. On the other side, it is quite clear that we will maintain a low short-term interest rate. Even if we will able to get a front run on the long end of the curve, we expect 10-year US interest rates to be at 2.75 by year-end. We are positive on the US markets. As fas as Japan is concerned, it is certainly is a very risky bet, because of obviously what is happening in the yen. It can be quite dangerous for the next few quarters, but for short-term we are positive on the Nikkei.
Q: This trend of risk assets, especially the US equities and the Nikkei doing so well and probably attracting money away from emerging markets and from commodities like gold, is this a trend that you are going to see for perhaps another couple of months? Will this quarter be marked by the same trend?
A: Yes. We are bearish on gold. We have a forecast of 1375 an ounce for year-end. We expect gold to continue to correct. This is because this is the end of the negative interest rate and move to positive real interest rate by year-end in the US. In Asia and particularly in Japan, investors are looking for yield and are clearly turning to Europe where they find more interesting assets. It could bring Euro at a higher level, which would be very bad for European competitiveness.
Q: Are you getting a sense that there will be some kind of money moving away from Indian equities.
A: Global investors were willing to have some profits on emerging markets and India as well. However, global investors remain quite positive on Indian equities and short-term it is likely that correction might continue. But in the medium-term, we should see some appetite for the Indian market.