FIIs opt to stay on sidelines due to choppy mkt: IG Markets

Justin Harper of IG Markets believes investors are withholding from buying risk assets currently because of the choppy behaviour of equities. For India in particular, he says “people are cautious because of the S&P downgrade and policy decisions.”

His advice is to keep an eye for short term dips that can be bought into in both emerging and developed markets.

On commodities, Harper is positive on gold. Though he doesn’t see the yellow metal rise to USD 2000 per ounce levels, he says there is definitely more upside from the current levels.

Below is an edited transcript of his interview with Latha Venkatesh and Reema Tendulkar. Also watch the accompanying video.

Q: We have seen a little bit of risk on, but it’s not been a great deal. Would you buy any of the risk assets at this point in time?

A: I would worry at the moment, I think things are pretty vulnerable at the moment. We are seeing sentiment improving, however, the risk on mentality is here to stay. We are seeing a lot of blips, we are seeing good data, we saw that from the US with manufacturing, we saw that with China but again we will see some negative data to cancel that out. The market is continuing to trade quite choppily, so I wouldn’t be buying at the moment.

Q: What is the outlook on India?

A: If you look at it from outside as a foreign investor, there is still a lot of negative sentiment about India given the policy decisions about retrospective taxation. We have the S&P downgrade as well, so I think a lot of people are cautious about India at the moment. A lot of people are very concerned about the policy decisions being made about India and are sitting on the sidelines.

Q: Gold has been dithering around USD 1,650 per ounce mark for some time now, but there are weak signs of quantitative easing on the horizon. Is this the right time to buy gold at all?

A: If you are a gold bull, now is a pretty good time because it has softened and its been trading sideways and the fundamentals still are good for demand against supply. However, while there are projections of gold breaching USD 2,000 per ounce by the year end, I cannot see that happening.

I definitely see some upside for gold, but it’s now trading very differently to a safe haven status; it’s very much seen as a risk asset and it’s moving accordingly. I still think it has got lot of upside potential from its USD 1,660 level we are seeing at the moment.

Q: What would you buy, if all the risk assets are a no-no for you at the moment?

A: I think you have to look at short-term rallies and buying opportunities and that could easily be within emerging markets. It could be on the commodities front also with gold and possibly oil. Within the developed economies as well, the US is looking quite cheap historically and has got lot of upside potentially with always slow recovery.

So we got to keep an eye on across the asset class and when you see opportunities to buy because at the moment they are very volatile and there are dips where you can get in.

Q: How high is the probability of Q3 because there in lies another risk on trade if that comes through?

A: Yes, that is the case. Manufacturing data from the US came out stronger, and we have got two key data points this week on Friday. We have non-farm pay roll data which could strengthen the argument that the US economy is recovering at a slower pace than what people would like, but still recovering.

I think there will be key decision before the Fed meet again next month, to decide on QE3. It’s come off the table a little bit, it looks less likely because the fundamentals look better, so you have to pay the waiting game. At the moment, I cannot see QE3 on horizon for the coming month at least.