Financial markets worldwide have seen a sharp recovery in the past week. And this trend is set to continue, according to Ian Scott of Nomura. "Markets look oversold currently and thus, there is a possibility that they will bounce further," he told CNBC-TV18 in an exclusive interview.
The recovery, however, he says will be gradual. "We see limited downside risk currently. Also, we see value in global equities," he points out. Still underweight on emerging markets, as he doesn't see big inflow or outflow of funds there, Scott says their view might turn slightly positive by the end of this year. He adds that along with other emerging markets, India too is likely to bounce. However, it may not outperform its global peers. According to Scott, the policy tightening in India is the key issue. "If we see more evidence of impact of tightening on the economy, then we could be close to a turning point," he says. He further adds that the policy cycle plays a more important role in India than valuations. Within the equity market in India, he is cautious on the consumer space. He believes that the high premium charged by the market for consumer staple stocks is unjustified. "Investors are not adding to the existing emerging market investment," he points out. Below is an edited transcript of his interview with Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video. Q: What have you made of the kind of bounce back we have seen in global equities and tactically how would you approach this kind of bounce backs? A: I think the market will bounce further. I think the current situation affectively discounts a replay of the earnings cycle that we had between 2007 and 2009. As per our forecasts, we do not think that is going to happen and so we think the market is oversold. Q: What is your assessment of the kind of time wise correction we are getting into, if at all? A: I think we have probably hit the bottom. The initial recovery has been relatively quick. I suspect what we will see over coming weeks and months is a more gentle recovery in the market, meaning that at the end of the year we give a year of positive returns. Q: So is it safe to say after the havoc that August has seen, the selling exhaustion has reduced and the downside risk will be minimal from hereon? A: I think there is a limited downside risk at the moment. The main force that could still negatively impact the stock market will be a further deterioration in the sovereign debt positioning in Europe. Q: This correction that we just saw brought up the opinion that perhaps it was the time to start overweighting EMs. You however thought differently. What is your call right now on the EM space? A: We are still underweighting EMs within our global allocation. The decision is not quite as clear now as we thought it was at the beginning of the year. We have seen some underperformance already, so there is scope to become a bit more positive on EMs between now and at the end of the year. Q: Would you buy into the argument that perhaps now is a good time for emerging market equities or economies to decouple to some degree from the developed market space? A: I think it is quite difficult at the moment for EMs to decouple from developed markets (DMs) in a stock market sense. Valuations are attractive everywhere in the world. I would argue they are slightly more attractive in DMs than they are in EMs. So you need that growth dynamic to drive EM stocks. In order to get that growth, we need to see the economies in US and Europe improve, so everything is linked. Q: In your view, what is IndiaDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
