India a stock picker's market: JPMorgan Sec

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Q: Do you think the market adequately priced this in - the European news with the fall or the knee-jerk reaction we saw last week or do you still see some residual risk in the system?

A: There is still some residual risk there because it isn't just sovereign risk because this correction did not start with the sovereign risk. It started with the fear of monetary tightening much as a term may have been loosely used. But monetary has been a risk quantitative easing ending in quantitative restrictions coming in - the whole political regulatory pressure on markets to normalize policy.

That has been building up and I think that hasn't fully gone away. Is it priced in well to an extent that the markets have corrected here has definitely been some pricing of this but I do think that we could get some more short term uncertainty persisting.

Q: The interesting thing is that Asia has underperformed in that context. Markets like ours are down between 11-14% in this region. Why is Asia hit hardest?

A: The issue in Asia has become a lot more linked to monetary tightening. Asia did not have the kind of economic compression Western Europe and the US had and to that extent inflation has come back a little bit faster in this part of the world. We have seen some central banks in the region move. We have seen the RBI increase CRR. We have seen the Chinese central bank increase the reserve requirements. We have seen the Australian central bank increase interest rates. The whole process of policy normalization has come to Asia a little bit sooner.

Now how that pans out in terms of demand my own view is that this is not necessarily a negative event if I look through beyond the short-term uncertainty. But because Asia has moved first because inflation has come back faster I think that is the reason why Asia seems to be impacted more.

Q: In that context and given what the RBI did, what is your call on India now?

A: First of all, if you look at the price action the markets had last Friday, when in the credit policy the RBI announced the reserve requirement increase more than what the expectation was. The markets were going for 50 basis points. The RBI came in with 75 basis points and the markets actually rallied pretty hard after the credit policy announcement.

So to that extent I thought that was a very interesting outcome where the markets were using that as a clearing event. If I look at India in terms of you know the overweight/underweight - my own view is that we have had macro trades for the last couple of years. This year is going to be a lot more about bottom up stock picking, differentiating between companies and I do think that differences are arising.

I would give you an example from the banking sector in India. In the past there used to be this differentiation in PSU banks and private banks. But I think within each sub-segment there are a lot of differences. So rather than saying that I would be overweight or underweight in India, I would say that it is a stock pickers market but for the record in the regional context we are overweight India.