India to do better in H2; accumulate on declines: BlackRock

From the beginning of 2012, questions around the performance of the US economy and the eurozone debt situation have been plaguing global markets. The fear of looming disasters, like a full-blown debt crisis in Europe or a second recession in the United States, has faded. This is pushing investors who had earlier shied away from trading stocks to now accept the markets challenge to grind higher.

On equities as a whole, Robert Doll, the chief equity investment manager at BlackRock finds stocks still attractively valued and that the market is still discounting a more negative environment. After a wonderful run since the October lows, Doll says markets are entitled to little bit of rest and there are fundamentals which could cause that bit of a rest.
The world's biggest money manager sees a couple of fundamental hiccups which might cause markets to pause but he adds they are reasonably constructive. Discussing these market trends on CNBC-TV18, he says, “I do see markets ending higher than their current levels.”
India’s list of domestic headwinds has been pushing foreign investors to view the country with a negative bias right now. The enthusiasm that propelled Indian markets at the start of 2012 is fizzling, as investors see big challenges ahead but have little confidence that policymakers will manage them well.
Markets are signalling deep uncertainty about India's ability to steer an economy not yet fully on the mend following recent policy reversals, including uncertainty about taxation of foreign investors.
Doll expects Indian equities to pick up some momentum again in the second half of next fiscal and tells investors – India is worth accumulating on declines. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Markets have just about treaded water over the last two-three weeks. Are some of the global concerns coming to the fore again which is leading to this kind of a pause or do you think this is just a temporary kind of a halt to the rally?
A: There is no question, the world has its issues and whether it be Europe or Spain in particular or the strength of the economic recovery in the US or China or elsewhere, from time to time these things will cause risk assets and equities in particular to pause and pullback. We have had a wonderful run since the October lows and may be the markets are entitled to a little bit of rest and there are fundamentals which could cause that bit of a rest. Q: By rest do you mean a couple of months of consolidation or more than that?
A: In my judgment, the pause that refreshes is one that lasts days or weeks and not months. The fundamentals I would argue are still reasonably constructive and equities are not expensive. So a grind higher for the balance of the year after this pause is probably what makes sense.
We will have another pause or two during the course of the year, some sort of pullback is my guess but I think we will end the year higher than where we are today. Q: Any numbers that you can put to that, for the S&P index or the Dow Jones index for the remainder of the year?
A: The US economic growth and earnings growth will support equities grinding higher. I think the real question is to where the year ends up, is what happens in Europe. If Europe stays off the front page, if it behaves itself and we continue to muddle through there, we could approach new all time highs for US equities which is 1,550 on the S&P 500.
Realistically, unfortunately, Europe has not solved all its problems. So from time to time, like last week Spain showed up on the front page and we have a little bit of a pause and so we are likely to grind higher, perhaps to the 1,450 kind of zone and that will have been a very good year if we get anywhere close to that level. Q: Any thoughts on how India could do as a market in the kind of environment that you have just outlined?
A: I am surprised India hasn’t like some of the other EMs begun to do a bunch better. My guess is India does do better along with some other EMs in H2 as the growth rate for EMs begins to resume. It’s a better trajectory after the tightening that so many countries went through to beat back inflation. Especially on weakness and we obviously had some, places like India are worth accumulating. Q: From a European perspective, what do you think is more important – the French election results or is it Spain which is emerging as the big worry and the wrinkle for the European situation?
A: You are absolutely correct. Spain is not a big economy like Greece wasn’t a big economy but we pay attention to it. The reason is not that Greece or Spain has a big economy that we are worried about, it’s the financial issues, the debt issues and it’s because these countries are a part of the Euro and a part of a broader set of financial challenges.
In my judgment the ECB in lowering rates and expanding their balance sheet in Q4 of last year does buy us some time in Europe but the structural problems remain. Q: What about the French elections? The early signs are coming in and they are not very optimistic for Sarkozy. Do you think it might have ramifications for global markets or European markets?
A: France is certainly something that has to be on the radar screen not only its debt situation but the election as well. Sarkozy has been a part of the issues that have moved Europe forward and if he is not around that raises the uncertainty level until we understand the new relationships in Europe. So, France, its election and its debt are very important. Q: We have seen the PMI numbers from China and the data from that part of the world has been very sluggish. Are you worried about how things are moving in China or is it not so material for the near-term shape of things?
A: China’s size alone means it is always important and I agree it is a bit of a surprise that China has moved away from the concerned list. I guess Spain and other things have replaced it. I do think we need to keep our eye on China. Growth is still slowing there. How slow it gets is a subject of debate and no one really knows the difference between a hard and a soft landing anyway.
Given that inflation is receding in China, that the authorities are lowering reserve requirements, we think we can see a day when growth resumes its upside acceleration in but not just yet. So, keep your eye on China. Q: So what does it all boil down to for the commodity complex and crude in specific?
A: In my judgment with economic growth around the world acceptable but not great, that’s not an environment where I expect commodities to catapult higher, nor do I think they are at a lot of risk. This is a year of volatile consolidation of commodities to include crude.
Crude oil, obviously, has crept higher in the wake of some problems, concerns and potential issues in the Middle East and that premium stays as long as that remains a hot spot and it’s hard to see that disappearing. So, crude prices have firmed up. They stay where they are. I don’t see them moving higher at any significant degree.