Mkts to see some more pain in next 6 months: Experts

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Its been a great week for the markets, more than 800 points on the Sensex, more than 260 points on the Nifty and that is 6.5% rally this week.

 

In 15 odd days we have pulled back nearly 1,500 points on the Sensex and back to within a striking distance of old highs. We arejust 500 points away from the Sensex and 200 points away on the Nifty from the all time highs. Its been a V-shaped recovery after all the depression and turbulence of August.

 

Ajit Dayal of Quantum Advisors says if you see those sharp declines, jump in and buy because the Indian economy for the next five-ten years will do extremely well

 

Jyotivardhan Jaipuria of DSP Merrill Lynch out of the two aspects to the emerging market decoupling; One is whether the markets decouple and the other is whether the economy decouples. The economy is more likely than probably the markets.Markets could have a bit more turmoil

 

Excerpts from CNBC-TV18's exclusive interview with Ajit Dayal and Jyotivardhan Jaipuria

 

Q: Lot of turbulence globally; do you think we have seen the end of it and are the worst over in the near term, you feel?

 

Dayal: I don't know about the near-term but I don't think the worst is over. If you read the reports and you speak to analysts in the US who track the mortgage markets and the sub prime markets, where much of this has actually originated. Someone in New York about two weeks ago told me that the reported losses at least at that point of time was about USD 3 billion from the sub prime loan segment.

 

According to him the losses will be somewhere between USD 100 billion and USD 150 billion. So if the housing markets remain where they are and everything else, then you are seeing significantly 30 times more of unannounced losses have to yet to come to the forefront.

 

We have already seen how a USD 3 billion loss and some rattling of market, had on a German State Bank having exposure to the subprime markets, already rattled Europe a lot few weeks ago. So there is probably a lot more messy stuff out there. Markets tend to do what they have to do based on greed and fear and relief and rally etc. But I think there is still lot more pain that will come eventually in the next few months.

 

Q: What is your sense that you are getting when you are talking to your strategy team at Merrill Lynch? Are they convinced that emerging markets are beginning to claw back and even decouple or is that just wishful thinking?

 

Jaipuria: In some sense our view is similar to what Ajit Dayal said that we have seen a relief rally just now but at some point we are going to get that pain again. It is not that this is a situation, which has got over in just one week. Our view is that next the 3-6months could be difficult period.

 

The decoupling of the emerging market probably will be a thing which we will see next year, when US doesn't do as well but India and all the other BRIC countries will continue to do well.

 

There are two aspects to the emerging market decoupling. One is whether the markets decouple and the other is whether the economy decouples. The economy is more likely than probably the markets; markets could have a bit more turmoil.

 

Q: You are not quite sure that we have bottomed out couple of weeks back?

 

Jaipuria: My view would be we will go and test those lows again at least. If things work out adversely on the subprime market, we will go below those levels also.

 

Q: What is your sense; do you think those lows would be tested; you will get similar buying opportunities again?

 

Dayal: I think a 12,000-14,000-15,000 range is sort of where we are. There is lot of mess happening now within India, there may be some peace right now with the government but a lot of things are going wrong in India that are coming to the forefront.

 

I think in terms of decoupling the biggest mistake that India has done over the last three years has been encouraging P-Note. We have made the Indian capital market subservient. We all talk about global cues and we keep on wondering how the Dow is going to close in the night and how Japan is going to open the morning but that is complete stupidity.

 

We have got a fabulous economy, we have got a very deep and wonderful economy and if we just have attracted the right sort of capital which really is what the FII policy was all about, till it got hijacked by the P-Note policy; we would have been away from all these stuff much as the Reserve Bank of India days of tighter controls. When the Asian crisis hit the rest of the world we were completely secluded from it, even in the capital market sense.

 

Today, because of P-Note you are very much going to be hit with all the turmoil there. So how bad could it get? - We have seen USD 40 billion of FII money over the last three years, reportedly 50% of that belongs to P-notes, if they leave in 1-2-3 months then there will be havoc here in the capital markets.

 

 But this is not to panic people but we have accepted a wrong sort of money and that money moves on its own dynamism of carry trades and subprime and irrelevant stuff as far as the economy is going.

 

But if you see those sharp declines, jump in and buy because the Indian economy as we all of expect and hope for the next five-ten years will do extremely well. It may not have 9-10% GDP growth rate, we don't believe in that but a 6.5-7% GDP growth rate is fabulous, companies will make a lot of money and when companies make money stock markets tend to follow and go up. So if the subprime guy has a criminal act of selling out of India, at a loss, Indian should be buying like crazy.

 

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