FII redemption pressure bottomed out for India: Aberdeen

Below is the edited transcript of the interview of Peter Elston, head- Asia Pacific Strategy and Asset Allocation, Aberdeen Asset Management with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.

Latha: Is the panic selling atleast petering out now? Do the early morning trends in Asia give you a sense that the market will wait and watch for a bit now?

A: It does look like manic selling because we have had such a wonderful period exemplified by what has been going on in the US equity market of rising markets with increasingly lower volatility. So, when we get a correction like this, it probably looks a lot worse than it actually is.

The truth is, higher the markets went, lower the volatility becomes. It was becoming more likely that we are going to get a correction. So, nothing really to be surprised or even worried about.

Latha: Should we therefore, read that you don't expect too much of downside from here on?

A: We think that the equity markets would fall or enter a bear market if inflation turns negative- in other words, if the world went into another deflationary period similar to that in 2008 or if inflation started to rise sharply.

We don't think that is going to happen. Central banks are going to stop economies from slipping into deflation. We think that private aggregate demand is sufficiently weak to stop economies from going into a high end rising inflationary environment. So, on that basis if inflation stays at low and fairly comfortable level, we think that equity valuations can continue to rise.

Sonia: Do you think India could face any kind of redemption pressure from Foreign Institutional Investors (FIIs)?

A: I think it is always possible. I think the worst is probably over for India. I think that we would have had the FII outflows by now, given that we have that big fall in the rupee. That would certainly have triggered some fairly serious FII outflows or at least it would have certainly got rid of most of the speculative investments that might have been in the Indian markets.

The rupee now seems to have stabilized now. I am certainly not suggesting that the rupee cannot weaken further, but our expectation is that it won't and therefore we have probably seen the worst of the FII outflows.

Anuj: In your funds in India or globally, have you seen some redemption pressures because yesterday the buzz was that couple of big funds have faced redemption pressures. In your India fund or any other Asian funds, if you saw some redemption pressure over the last couple of days?

A: We saw a little bit, but not very much. We are very long-term investors and very bottomup investors. This means that we are more interested in what companies are going to do over the long-term than what markets are going to do in short-term. Therefore, we tell our investors that if they are putting money in our emerging market fund, then they shouldn’t think too much about the short-term.

Anuj: As you said you are a long-term investor and yesterday the buzz was that some long-only funds saw the redemption pressure and you did face a little bit. So, if you could quantify that and the stocks that saw selling pressure because you have large holdings in some of the blue chips in India?

A: It is fairly minimal for the reasons I cited. I think most of the pressure has been either with exchange traded funds (ETFs), which is what I would call ignorant money. It is money that is buying everything, it is indiscriminate buying and therefore tends to be a little bit panicky when you get a little bit of nervousness entering the market.

All funds which are active funds but are more focused on the short-term, I think that is where the selling pressure is, not much with funds like ours.