Probability of mkt correction higher than upsurge: Experts

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Q: In the last three months in all this turbulence have you found reason to rebalance your portfolio, may be skim some profits of some of those tearing outperformers? Have you looked at some of the recent underperformers?

Narayan Ramachandran: We haven't really changed in a big way, though, I guess given the violent movements, may be we could have done a bit more, but not in a fundamental sort of way. I think the one issue that we are examining and I honestly don't have a full answer to it yet, is whether there is any serious exposure to the US economy in our stocks, and whether that would imply that we need to potentially think of a way to deal around that, because I think we would have to shave a bit of the US expectations from three months ago, because this crisis is for real in the US.

Q: Which means you may consider cutting some of your exposure in sectors like IT?

Narayan Ramachandran: We were never huge in the first place. We like IT. So, we would have to think about exactly that phenomenon. The question is whether IT has managed to diversify both in a dollar sense, and in an exposure sense sufficiently to accommodate a fall in the US or not. As I said, we haven't made that decision yet. But that's the area. I would be looking to reexamine the portfolio based on new information from this crisis.

Q: Any areas where you are feeling extra bullish about which you would really go out and buy out if there is a substantial fall?

KR Bharat: Like I have been saying all along, if you are bottom-up, there are a lot of companies that are on the cusp of huge growth. You are talking to a midcap or small cap fan, I am not into the large caps at all. And in that space, across sectors there are these little companies or what might seem to be little companies, which are going to become huge in the next 5-7 years, regardless of what happens in the rest of the world. And that's the kind of companies that we are focusing on.

Despite all the doom and gloom mentioned earlier, we remain fully invested. We have taken a bit of money out of the listed space, which has gone into the unlisted space. We are hugely bullish on India in the long run, and these are all I think circumstances that will lead to opportunities for long-term investors. So, I am not bearish or cautious about any industry in particular. From a bottom-up perspective there are companies that I think are poised to do huge things.

Q: If we get another leg down, as you are predicting, what's the extent of carnage do you expect to see, just a revisiting of the August levels, which is another may be 10-15% from here or worse?

KR Bharat: The honest answer is I don't know. The extent of the carnage as you say depends on the extent to which we get bad news from the US. If this whole thing sort of blows over then what I am saying is incorrect. But if it doesn't and I suspect it won't, then the extent of the carnage will depend on the size of the problem that ultimately unfolds. So, I don't know the answer to that question, but what I do believe is that it will be significant. It will present a huge opportunity for the long-term investor.

Q: You used the word retest, does that mean that you have merely expect that to be the size of the next leg of downside, if you do get one or may be it could get worse?

Narayan Ramachandran: That's the thing about retest. You never really know whether this retest will hold the test or not. I have to agree with Bharat that there will be retest, but as to whether that is conclusively broken or not will in part depend on the extent of the capital markets issue related to the credit crisis in the US and the real economy issue related to the housing crisis in the US. It's just virtually impossible to predict.

A lot of the Fed's economist met in Jackson Hole late last week and pretty much every one was of the view that it was very difficult to predict what was going to happen, except one guy, which was Martin Feldstein of NBER , and he basically said the Fed needs to cut 50 basis points now, because for all practical purposes we are already in a recession.

So, the tone was very gloomy over there in terms of the real economy. And even if that's partly true, then I think even chances on that retest actually going through the market, rather than hanging in there.