Downside risk for Asian mkts remains higher: Julius Baer

Excerpts from Power Breakfast on CNBC-TV18 Watch the full show » RELATED NEWS Outlook for markets still grim: Javelin Wealth Mgmt Asian mkts to take lead from US mkts: Kirk West Chinese stimulus package short-term +ve: Daiwa Institute Volatility in the Asian markets to remain: Subodh Kumar ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Most of the Asian markets started off with deep cuts anywhere between 1 to 2%. It has been very volatile for couple of those markets but Nikkei has decisively moved up in the green. Nimeesha Takalkar, Equity Research (Asia) at Julius Baer believes that the downside risk for Asian markets remains higher. Valuations are inexpensive but the amplitude of the recession is still unknown says Takalkar.

With regards to India she says, the policy risk still remains high. Short-term liquidity provisions may not eliminate our problems in this period. Export contraction now is much more a real threat and so the topline deceleration in India in particular remains the unknown variable at this point in time said Takalkar.

Here is a verbatim transcript of the interview with Nimeesha Takalkar on CNBC TV-18. Also see the accompanying video.

Q: Considering that there was no concerted policy response from the G20 meeting, added to that the Japanese recession playing its part and a weak sentiment playing in Asia what is your expectation today of the Asian markets, will there be deep slide?

A: The risk is definitely on the downside even now but whether it is a deep slide or not it is hard to tell. Valuations are looking undeniable inexpensive any more, some countries are even lower than the Nasdaq bubble but the amplitude of the recession still remains and unknown and as we all know first time after deep depression of 1930's the real economies are actually beginning to contract and the much talked about decoupling of the developing world has not yet happened. So the downside risk definitely remains higher.

Buyers at current levels could either be playing short-term rallies or they need to actually will hold for a much longer tenure, more so because the debt markets seems to be returning much more than equity at this point in time and the political overhang for the many of the Asian countries, particularly in the case of India is very strong.

On India, the policy risk still remains high. Short-term liquidity provisions may not eliminate our problems in this period because most other countries are looking at fiscal spending for stimulus and unfortunately for India we have probably fired most of our bullets on that front.

Indian corporates are faced with very severe liquidity crunch and promoters are hit by mark to market margin calls and this doesn't make a good backdrop for private investment cycle to continue from here.

Export contraction now is much more a real threat that it was a couple of months or weeks ago. So the topline deceleration in India in particular remains the unknown variable at this point in time and people look very closely at that to take further clues