See GDP at 6.9% in 2009, further pain in mkts: S&P

Q: How have you estimated the Sensex EPS for FY09 and FY10? What kind of a growth would you give it?

A: We don't specifically look so much onto the micro side - individual company growth rates - but the macro view at the moment is that consensus for the EPS growth will be around 16% next year. That may have some risk to be honest because we are expecting Indian GDP growth to come off to about 6.5% in 2009. On that basis I do feel that there may be some downside risks to the earnings estimates in the market place.

Q: We seem to be living from bailout to bailout in equity markets. They go comatose; we get a bailout, get some sort of a rally and then sell-off. How has this changed the contours of this bear market that from time-to-time the US Fed the Treasury - they are not holding back and saving those markets? How has that changed the contour - there is the word great depression or the Japanese 90s sort of scenario now get thrown out of the window now on account of the Fed's action this time?

A: Yes and no. I think that every recession and this is a financial crisis led recession - so the actions that are being taken on the positive front are very quick on a global basis and that's positive for the market and to help the economies recover. But I do think that the actions that are being taken are really to free up the underlying credit crunch that's going on in the US. Asia has been through this during the Asian crisis. So for Asia what this means is really that it is just a normal business cycle downturn but obviously it is a little bit more severe than what we have seen in the past decade or so outside of the Asian crisis. But what that also means is that Asian governments will have to stimulate and try and get the economy and the spending running - just ensure a soft landing essentially.  

Q: One hopes that when the US problem and the global problem starts to recede - which markets do you expect in Asia will emerge first? With respect to Indian equities itself, do you think they are likely to test the October lows that we saw - the Western markets did test their October lows but the Asian markets haven't - do you expect that to happen sometime in 2008 itself?

A: Yes, in a nutshell. I think the original question of which markets will come out first on the recovery front - when risk appetite comes back money will go to where the growth has been. With respect to that one has got markets like China and even India, where the growth outlook is relatively high and that is going to be attractive.

I do think that there is going to be a preference for China, Hong Kong issues because of the liquidity as well and the fact that the Chinese government has lot of flexibility to undertake more stimulus. So those are benefits and that is going to attract money flow to those areas. We do expect the global markets to retest the October lows. I don't think Asian companies or markets are going to be spared from a retest and that is mainly because the bad news is still coming out. It is like a tidal wave of bad news that we are seeing. I think the recent news on some of the bailout packages does help because it means that the government is trying to free up credit and consumer credit as well and get people start spending again.

Economies need to ride out the downturn. Corporate earnings are going to be poor and that is going to be a drag on the upside for the market in the short-term at least.

Q: Are you a buyer in Indian now and what sectors would you think are likely to look healthy at this juncture?

A: Although historical valuations are low for India, on the relative basis if one is an international investor like we are - we actually have a neutral view on India right now. We will probably go to where there is basically more flexibility in its fiscal policy perhaps and that's where we have been overweight stance on the China issue.

For India, what's interesting to notice is that the share ownership level has really not come down to historical low ranges yet. So that may indicate some more selling pressures ahead at least on some of the domestic front. So we will see how that pans out. If it is actually going to stabilise and it may not go back to those lows but it is definitely in a market that we will probably monitor because as I mentioned, relatively the GDP growth is still attractive.