Gold won't sink or spike, see crude at $90-110: JP Morgan

Geoff Lewis, JPMorgan AMC remains bullish on Indian equities in the emerging market space, on the bet that liquidity flows will be strong.

"With a helpful global liquidity environment, I don't think our view will change anytime soon. We will be seeing signs that slowdown in India has troughed and economic activity will be picking up soon," he said in an interview to CNBC-TV18. The Indian currency has depreciated to 55.73 to the dollar, falling for the seventh straight day.  He sees the rupee recovering marginally from current levels. According to Lewis, the Japanese market is at a turning point now given the steps that are being taken to tackle deflation and getting growth on track. The Nikkei, which has been falling on the back of profit booking for a while now is unlikely to plunge to October 2012 level and will stabilise soon.  He recommends investors to enter that index now. Must read: Rating downgrade risk for India still high: Jim Walker While most global markets are worried about Federal Reserve tapering off its quantitative easing programme in its June policy, Lewis feels for Fed to withdraw stimulus, payroll and other economic data from the US has to be strong.  He expects US economic data to be weaker in second half of this year. On commodities, Brent crude is seen hovering around 90-110 per barrel now.  Lewis feels gold is unlikely to move to higher levels but it is still worth maintaining in one’s portfolio as a hedge inflation risk.  'I don’t think gold is in danger of collapse, but at the same time it won’t make a stellar advance in the near-term." Below is the verbatim transcript of his interview on CNBC-TV18 Q: The trepidation in Nikkei continues today as well. Can you just throw some light in terms of whether or not this is now a significant downtrend for the Nikkei which has begun or is it just a temporary blip in an upward market? A: What we are seeing is profit taking. Markets do not rally in a straight-line and also the meteoric rise since last October of around 70 percent has happened on very few occasions historically, and quite often markets have fallen back very sharply thereafter. That is not our view on this occasion. We think this is a major turning point that Abenomics is for real and now Japan is doing its utmost to end deflation and get onto a better growth path. So, it is not surprising that markets have corrected. There were some concerns by the Fed last week, but we do not think this is going to be a plunge back to last October levels. We think the market will soon find a base. This should be a good opportunity for those who have missed it to increase their Japan exposure. Q: Would you extend that theory to the US markets as well? Last week was all about speculation on whether the Fed will clamp down on their monetary stimulus in the June policy. What do you believe the Fed will do? Do you think even in the US markets it is just a pause before the uptrend resumes? A: There is always the chance of a short-term correction because the US market has motored very strongly and it is possible, we will see some weaker data for the second quarter. That is not really in the limelight at the moment, it was the Fed last week. Basically, Bill Dudley and Ben Bernanke did not reveal too much that is new. It would still be an extreme scenario; you have to have very strong payroll figures for them to start tapering off by mid-year. I would still think it is much more likely that we will not see a tapering off of QE until there is a much better run of economic data. The data will probably turn up in the second half of the year, but I certainly do not think we are seeing anything like strong enough figures for the Fed to start tapering off QE as early as June. Q: In the situation that QE does continue for a few more months beyond June where do you think India is placed in the entire basket of incremental flows coming in from foreign investors? What would you be recommending to investors in terms of an India position as well as this point? A: We haven’t changed our views on India. Generally, we remain overweight India within our Asian equity portfolios and within our emerging market portfolios. With still helpful global liquidity environment and with central banks doing more to keep long-term interest rates low that are not going to change for quite a while. I think we would be looking for a normalisation of correlations, a reduction in risk-on risk-off and a gradual pick up in investor risk appetite in the second half of the year. That should favour some of the larger emerging markets like India, particularly, because we think we will be seeing signs that India's slowdown has troughed and that the economy is going to be picking up in terms of activity and inflation has also come down. So, all in all we are very happy to remain overweight on Indian equities at this point in time. Q: The last time we spoke, you had indicated that you are long on the Indian currency as well, on the rupee with a three to six months time horizon in mind. Were you slightly disappointed with the weakness that the rupee has seen in the past couple of weeks? What kind of range are you working with on the dollar-rupee now? A: While we have seen a little weakness, we would still believe that over a somewhat longer viewpoint we have seen the trough in the Current Account Deficit (CAD) will gradually begin to diminish and the rupee will trade sideways to marginally firm. I would not like to give a range in terms of spot currency becasue we do not normally forecast currencies. Q: The other talking point which would affect the India markets is obviously the prices of gold on one hand as well as of Brent crude on the other hand. In terms of gold there is mixed opinion that this is just a temporary bounce and the other contrary opinion that we could see levels of around USD 1,000-1,100 an ounce. What would your opinion be on gold? Where do you expect Brent crude to possibly average out in the next six months of the year? A: Our assumption for Brent has been a range of USD 90-110 per barrel and I would think it is more likely to drift towards the lower end of that range. The physical market is quite well supplied, barring any major upsets in Middle East politics. We would be quite comfortable that oil is going to be relatively well-behaved for next 6-12 months in terms of fundamental demand and supply. In terms of the gold prices, I do not think we are going to see another major move upwards, but it is worth maintaining some gold in your portfolio, for its diversification properties. And just a hedge against some of the inflation risks, which maybe are tail risks, but they are still there in back of many investors' minds. I do not think gold is in danger of collapsing, but I do not think it is going to make a stellar advance in the near-term.