Indian market resilient in present global climate: JPMorgan

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Asian markets seem to be in a bit of a tizzy this morning after the big second day 6% fall in Japan. Adrian Mowat, Chief Asian and Emerging Equity Strategist at JP Morgan told CNBC-TV18 that the events coming out of Japan will lead the Asian market sell-off. "Markets are vulnerable to a sell-off due to turmoil in the Middle East and the natural disasters in Japan," he says.

Japan is leading the Asian pack lower today, he adds.

Global economic data is a cause for concern as it hasn't been too encouraging. JPMorgan have taken down their US GDP forecast from 3.4% for 2011 to 2.9% in the last couple of weeks. He finds that the Chinese CPI data was above expectations on March 11. "The GDP numbers may need to be downgraded in China based upon some of the loan growth data, the monetary aggregates and the PMIs," he says.

Through all this turmoil, however, he finds that Indian markets have been able to keep their head above water and stay afloat. "The Indian market is proving to be resilient in the current economic scenario."

Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. For complete details watch the accompanying video.

Q: Yesterday, the markets were able to deal with the Japanese issue, it seems better but today, most markets are reacting quite violently. What is sentiment like?

A: What people are beginning to factor in is the impact to output in Japan of the problems with the nuclear generation. If you look at the first nuclear power plant that got into trouble, it accounted for about 10% of Tokyo Electric Power's output which is about 4% of national output.

There are now two nuclear power plants that have issues with cooling and are out of action. What this means is you're encouraging industry not to produce in order to avoid the rolling blackout for domestic users and for transportation. You are also trying to keep the power going for the benefit of the recovery crews that are trying to look at these devastated areas of northern Japan.

Q: These are situations that markets have not looked at or lived in for a long time, deep political strife in the Middle East and North Africa (MENA) region and then a nuclear fear of this magnitude. How much do you expect risk aversion levels to escalate by because of the current atmosphere we have?

A: We were nervous with the lack of risk aversion in markets or risk premium, particularly, with the events in the Middle East. We just had the worst ever earthquake in Japan which has caused just unbelievable suffering at a personal level but is also beginning to become apparent that there is an economic impact, primarily, coming through with the issues of electricity generation.

So, markets were near highs, particularly, the US equity markets, emerging markets weren't significantly off their highs. Middle markets like India had corrected a bit more. We are vulnerable to a sell-off. In addition, the economic data hasn't been particularly good in the last couple of weeks. JPMorgan have taken down their US GDP forecast from 3.4% for 2011 to 2.9% in the last couple of weeks.

Chinese CPI data was above expectations on Friday and the GDP numbers may need to be downgraded in China based upon some of the loan growth data, the monetary aggregates and the PMIs. The economic backdrop is deteriorating at the same time as issues such as the Japanese earthquake, unrest in the Middle East are coming to fore once more. Let us also not forget that Europe has been negotiating aid for peripheral Europe and the United States Congress needs to vote on increasing the debt ceiling on March 18. So, there is fair amount of worry about this week.

Q: Any change in the region switching between one country to the other asset classes or do you think too much is in flux right now to make that call?

A: There are some very clear calls at the moment. The trade to have in place for four-five months has been to be very overweight exporters. So, long markets like Taiwan and Korea and to some extent to be underweight domestic demand plays because the concerns were that inflation was building and interest rates would be rising.

I now think you should switch that trade completely around. We are underweight Korea, we downgraded Taiwan from overweight to neutral, we are underweight technology and I am thinking about tech hardware rather than tech software which tends to be what comes out of Korea and Taiwan.

We are probably looking at the Association of South East Asian Nations (ASEAN) region more favourably where inflation data points have been a little bit less than expectations. Looking at the way ASEAN is trading is quite encouraging. Also note, the Indian stock market is proving to be reasonably resilient considering the number of events that are occurring.

Q: What is leading to the Asian sell-off this morning? Do you think there is some global selling which has started already because of the events of the last couple of days and do you think that might trigger off the 10% kind of correction that you were speaking too a few days back in the MSCI?

A: Yes, it's really Japan that is leading us lower. There is a real economic impact of what has happened in Japan. That economic impact may prove to be broader than was assumed over the weekend and maybe early Monday morning. Japan, in many ways has been extraordinarily resilient considering this is now being rated as the fourth largest earthquake ever.

When you look at Tokyo, it seems almost unaffected. So, the assumption was that there was going to be business as usual. That assumption of business as usual is now being challenged because of the problems with electricity generation related to the nuclear power plants.

Also read: JPMorgan likes India, China, but wary on inflation