See more pain in next quarter: DSP ML

Q: You have indicated that you are waiting for new themes to emerge, is this an earnings call in terms of which sectors will take over earnings leadership?

A: Whenever this kind of volatility happens and whenever we see this kind of prolonged bear market always new leader emerge, its not that the old leader will lead the market into the next bull rally. We are still watching. We don't know the contours of the current problem yet and when we know contours of when this current problem will end then some new leaders will emerge.

In India the leaders will not be much different from the older one because when the dust settles; most of the policy action have been proposed, the contours of the problems are known, what will happens is the risk aversion will subside and the growth appetite will return. People would be looking for growth which will not be at many places in the world and there will be few places which will be growing at 6-7%.

So it will be growth, growth trade which will attract investors to India; be it infrastructure, capital goods etc although I don't know if the players will be same but certainly it will be growth trader which will attract investors to India in the long run.

Q: For the moment what would you do - what kind of instruments would you like to put your money in and what kind of asset allocation is prudent in this kind of a period?

A: In this kind of turmoil what is of utmost important is to preserve capital, so that you can enjoy good times. So I would like to protect my capital, high quality debt, cash and domestically oriented companies with high cash flow that will be my preferred asset classes at this point in time.

Q: How long will this painful period continue? In your eyes by when can we even talk about this bear market coming to an end?

A: Historically this kind of bear markets has lasted for five-seven quarters and now you have to take an assumption when this bear market started. Most of them believe that this bear market started in January 2008 but this bear market started in July last year when we actually saw the problem coming and most of the markets had corrected at that point in time.

Typically bear markets have 3 phases; a sharp fall, a small recovery and a drawn out consolidation phase. So we saw a sharp fall last July but the bounce back we saw was exceptional and we have not seen  kind of bounce back in the past bear market. This bounce back bounce was almost 50% of the market at that point in time. So most of the ingredients of bear market were there; oil was still at USD 80 per barrel at that time, almost double the price of January, the global sub prime had irrupted, people had started taking the hit, corporate earnings slowed down since that June quarter.

So the bear market has started in last July and what happened in August and January was an abrasion probably. So if we take that then the bear market has lasted 15-18 months and so we are probably two quarters away when we see the bottom. But after this bottom is achieved, I don't see that we will start rising immediately because we will have election in between and during election time we will see heightened volatility in our market.

Once we are out of election somewhere end April, mid May and the Budget is in place somewhere in end June or early July next year and we know the new initiative which the new government is going to take, we know the contours. And when the political uncertainty is over then we will start seeing good times at that point in time. But it will take another two-three quarters from there when we actually start the rally again.

Q: The GDP targets for this year have been scaled down and for next year they would be between 7.5-7%- at DSP ML what have you penciled in for India's growth?

A: We are projecting 7.5% growth for current year as well next year, but this growth is subject to downward risk in case the funding continues to be a problem for funding infrastructure project in particular.