Indian equities to go up in October: Societe Generale

“The news going forward is going to beat expectations. The lows have already been put in. If anything, for the month of October, you are going to have up month for equities,” he says.

Below is a verbatim transcript. For complete details watch the accompanying video.

Q: As time runs out for Greece to secure funds. What is your assessment of the entire situation? What kind of a contagion effect it may have on nations like Italy, Spain etc?

A: The news over the weekend was positive. Greece announced an austerity programme that was upwards of USD 8 billion. The contagion is quite obvious. It’s affected overall sovereign yields across Europe which affects the cost of capital. The austerity affects unemployment and the actual demand side of the economy.

Hedge funds are extremely short these markets. They have attempted to short Europe, but they have been restricted to only be able to short Germany. What has happened is the global hedge fund community has moved over and they have been shorting Asia very heavily. For example, Hong Kong and China today, at one point they were down 6% and it was not justified by the fundamentals. It’s my view that hedge funds are going to get squeezed out of these markets as long only start buying stocks over coming days and weeks.

Q: What kind of a situation do you foresee in October? Do you think there would be a complete collapse in equity markets like in Asia or do you think the worst may have been priced in and we could find some sort of a formidable bottom?

A: I would say that a collapse - past tense has already happened. Look at the charts; they have already come off upwards of 25% in the last month. They are overtly discounting the bad news. Things are slowing down, but I don’t think we are collapsing from a growth perspective and markets have probably already hit their lows for the month as of today.

The news going forward is going to beat expectations. The lows have already been put in. If anything, for the month of October, you are going to have up month for equities.

Q: Is that the view for India as well?

A: Yes, absolutely. India had been outperforming the region. India probably deserves it because they get better return on capital than the rest of the region. A number of investment banks are recommending India relative to other markets around the region. For example, relative to China which is something I disagree with. Given the cheap valuations for North Asia relative to India, you could get a bit more performance out of Korea, China and Hong Kong. India will go up for the month of October.

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