Global GDP may rebound from 2.5-3% by next year: JP Morgan

Sonia: You don’t expect any flight of capital out of emerging market funds including India funds at least in the first part of 2015?A: As I said tactically today may not be the day to buy. I do think that there is a period of correction and consolidation that we will foresee in the short-term, so I do think this will provide a buying opportunity. It’s just not there as yet today. So there is some concerns on growth, no doubt, there is a deflationary questions being posed which lower commodity prices are imposing. We are seeing that across the board, not just in a emerging markets but also in developed markets we have seen Japan correct aggressively over the last few days, we have seen the US market correct, we have seen the European market correct. I do not think this is necessarily limited to emerging markets but it is a much more broad based concern overall in the short-term in the market but we are not bearish on growth outlook at this point in time. In India in particular I do think that we have seen the market run very well ahead of the actual delivery on earnings and no doubt monetary policy headroom is getting created as inflation comes, Wholesale Price Index (WPI) printed zero yesterday. So, we should be looking at opportunities to buy and there are some areas which are attractive even today on a relative basis but a period of correction is not ruled out at this point. Latha: For the better part of 2014 India was the best performing market but in the last eight weeks we saw fairly decent outperformance coming from China. How do you see the next six months, which may be the leaders in the emerging markets in terms of performance?A: If you look at the BRIC countries. We are overweight on China and India and we are underweight on Brazil and Russia. The alignment is very much towards the Asian emerging markets in many respects. In the Chinese market you have to look at the outperformance and the absolute rally in the context of a very long and deep underperformance over the last four years or so. We do think that China has more legs to run. One of the defining features we are seeing across emerging markets with the exception of Brazil and Russia is the monetary policy cycle seems to have turned and we are expecting rate cuts in India. We are expecting some monetary easing in China. I do think that there is room to run further up in places like China.

Latha: How much more downside you think in this current wave of profit taking?A: I do not want to get pin down into specific index target on the Nifty but there are areas in the market which I would look to buy today for outperformance but I do expect the market overall to be correcting. The one area which we want to be playing with monetary easing more likely than not, would be banks and particularly public sector undertaking (PSU) banks. The PSU banks trade has been outperforming and this one looks one of the best opportunities in the market.Sonia: Can you throw some more light on what your sectoral bent is apart from PSU banks because as of this morning we have positive news that the Reserve Bank of India (RBI) has ease some norms on infrastructure loans etc. how are you watching some of these economy related pockets like infrastructure, capital goods. Is it still a good place to put money into?A: From valuation perspective deep cyclical are definitely and overall the cyclical space is still very attractive. However, rather than look at a broad base buying in that space, one area you want to be very careful on is companies that have the ability to deleverage because one of the biggest problems we saw in this space in the last few years is companies balance sheets has become leveraged up to a point where it was becoming unsustainable. So even though you get monetary easing or easier availability of funds, you still need some of these companies to deleverage and with infrastructure space there is quite a bit of dispersion. The pointer I would use is where companies have shown a demonstrable capability to deleverage or PSU banks become a levered play on the same opportunity, just a much cleaner, easier opportunity to play on the upside.

Sonia: We have got an ugly trade deficit number to react to this morning but within that the biggest disappointment is that exports have fallen quite a bit. How do you react to some of the export linked companies in the Indian market? Would you stay away or would it be a good time to buy if any dip?A: There can be fair amount of noise in the monthly trade data so I wouldn’t necessarily be too much into it. Definitely we have seen the currency depreciate slightly, so it does help the export companies but just bear in mind that we have seen a very substantial performance from some of the export driven companies particularly the IT services, so keep that context in mind as well and I keep defaulting back to playing the domestic story much better which is contingent on early cycle recovery, monetary easing and that is the place where the biggest upside and opportunity exist. Latha: The goods and services tax (GST) is almost to be through maybe not in the best of shapes but still that Amendment Bill looks like will be placed before Parliament in a week or so. Will that be seen by investors as very big?A: It is a step in the right direction because at the end of the day this has been talked about for quite some time and it does help bridge the fiscal gap to some extent and from that perspective it will be seen as fiscal consolidation and given that the inflationary forces are now little bit behind us or at least definitely eased off, I think from an inflationary perspective it won’t be a problem. So yes, it should be seen as positive.