Fair value target for Sensex is 11000: Mowat

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 30/05/12 Are Mutual Funds betting on Nifty?

Q: What's your prognoses- do you think in the next two-three months we could have a May style correction on emerging markets or is the likelihood of that not so high?

A: I am not sure about the near term. We are in a sweet spot where the perception globally is that the Fed is on hold, and bond yields have been coming off a bit. I know, everybody is focused on this Q3 GDP numbers, but that's history- we are in Q4. Today's economic data is showing acceleration of growth in emerging economies. So the Q4 of this year is going to be strong for global growth, and as that occurs, people will begin feeling more optimistic. The problem comes when you go into the Q1 of next year.

The Fed constantly says that they are on hold for the time being as they are worried that the housing down turn in the US will cause a broad down turn in the US economy. At JPMorgan we don't believe that this is the case. We think that the Fed, in the Q1 next year, is going to start thinking about price stability. We have seen the Core CPI (Corruption Perceptions Index) forecasted at 2.9% by December this year, the comfort zone for the Fed is 1-2%.

So the Fed is going to start raising rates next year and we think that the Fed will increase rates in March by 25 bps, and for the next two meetings they will increase rates. So come June next year, we are going to have 6% Fed funds rate. This reminds me of the awful April-May 2004, which was the start of the tightening cycle. For some reason, the bond market seems to be ignoring this. They ignored this for too long and that's when we saw the big sell off in bond markets. When that occurs, people perception of risk changes and they tend to stand back.

They do not aggressively sell emerging markets they just stop buying them. You get this trading into a vacuum similar to what we saw in May this year, and that's what I worry about. But I think it's going to the Q1 of 2007 event rather than an event this quarter. I would say stay well invested, continue to enjoy the momentum in the current rally.

Q: Could it actually get better before it gets worse?

A: That's right.     

Q: Anecdotally, are you seeing any redemption pressures, not just in BRIC funds but in GEM funds more importantly?

A: No we are not seeing any redemption pressure in funds that we monitor. We are obviously monitoring what's happening with clients rather than ourselves as a stockbroker. What surprised me the most actually is that we didn't see redemption in commodity funds. Now the commodity market looks set for a really meaningful correction. We had a fall in the oil price, which brought down the broad commodity indices. So we lost momentum in commodities. At the same time, the futures market is playing a negative role.

Regardless of that, we still saw good net subscription into commodity funds over the last quarter, which certainly surprised me. So the general message out there is that there is plenty of money and people are looking for homes for that money.

Q: Are you looking at all to change your weightage or rating on India as a market?

A: Even if I was looking to change my rating, I am not allowed to say that before I officially publish it. We have this 11,000 index target, and that in itself is quite a bullish number going back to this view that India is the most expensive market globally.

We have got a 11,000 target, which is still just under 17 times forward earnings, coming end of this year, which is a high number and an optimistic number in some ways.