Though there has been a spike in volatility across assets, the global will be above trend in the second half led by US, said Sunil Garg of JPMorgan.
According to him, every correction is a buying opportunity and he remains “constructive on global equities, especially Asian markets". Garg feels Indian market provides the cleanest and clearest opportunity to buy right now as it is “cyclically and structurally” strong. He expects it to outperform all other emerging markets for the next 6-12 months.
Below is the transcript of Sunil Garg’s interview to CNBC-TV18’s Latha Venkatesh and Sonia ShenoyLatha: What is the global scene looking like and India’s place in it? Over the last one week it appears to be that the risk aversion has gone, the growth scare has been over come but India is not quite the outperformer it was before the scare began?A: One thing that is very clear is whether it is risk on one week or risk off another week. I think we have definitely seen a spike in volatility across markets and across asset classes and that is something which is probably going to put a lot of forecast at risk. But if we step back and look at global markets, we have had different reasons for concerns. September was probably more driven by the end of zero interest rates in the developed work, pretty clearly the US and obviously a lot of political noises in many markets. And more recently I think there have been concerns about global growth. What we are looking at from an economic growth perspective, global growth will be above trend in the second half and it is going to be pretty clearly led by the US. I think the jobs data is continuing to be strong. But from a market perspective I think the most striking factor is that since 2011 every correction has been a buying opportunity and most corrections have been shallow. Now with the index the S&P over the last couple of days getting back on to trend I think at this stage the message we have is unless we see a big breakdown, we think it is time to stay constructive. What is very interesting is and we will come to India in a moment, that Asia, infact broader emerging markets have actually outperformed through this period when we were seeing heightened volatility and corrections in the developed markets. So the outperformance message on emerging markets in Asia is also very much intact and that has been a continuing theme that is the one that we like substantially. As far as India is concerned we have had the market run up ahead of events so would you go through a period of consolidation, perhaps modest underperformance, I think this is the clearest opportunity amongst major markets. So when I say buy the dip I think this is a market where the confidence is probably amongst the highest. So to that extent we absolutely like India cyclically and structurally.
Sonia: How encouraged are foreign investors with respect to the spate of reforms that have come through and do you think this Modi premium is here to stay in the sense that India will continue to outperform most emerging markets for the next 6-12 months?A: First of all any premium is going to stay as long as your delivery so there was definitely anecdotally lot of calls for the new government to deliver some big bang reforms. Clearly there has been a lot going on in the background but you do need tactically to deliver on some of the bigger spaces to keep the confidence going. What you have seen over the last few days in the energy sector is clearing meeting those demands. So this is not just reform encouragement by that. I think definitely so but it is also reaffirming the faith on which the new government was elected. So from that perspective it also adds to the confidence. Obviously execution is going to be important so they have liberalised diesel prices. There is always going to be prices rise so let us see if the price deregulation is going to be symmetrical but at least the confidence is a lot higher. It adds to the story, we have had some buy elections delivering some positive results. So again the Modi premium or any government premium is simply going to be a function of execution and delivery. But for now it is definitely looking good.
Latha: The last month say better part of October or even from the last week of September we have seen foreign investors largely selling and even balking at buying as we get towards the 8000 mark and that is why the outperformance has not quite been there in the last four weeks or so. This is despite the fact that the last four days after the state election results we have seen the government chugging along very nicely with reform steps. Would you therefore say that probably this quarter we are not going to see too much of buying or we are going to see it come?A: As far as money flows are concerned my own view is that a lot of our markets attract investors who are seeking growth and who are seeking opportunity. So yes you can have outflows, inflows for short period but ultimately if you are delivering a growth promise and a growth opportunity I think the money is going to come. Now what has also happened is if you look at the broader context, emerging markets have seen very substantial outflows on a year-to-date basis and a lot of that has been concentrated in the last couple of months. We have had deep concerns in geopolitics and a few other things. So when you get back on to a risk on mode, then somewhere those markets are likely to attract money initially. I mean India has been holding up on a relative basis a lot better during this volatile period so from that perspective I think just on a very short-term basis it is okay to see that you find some more money flows going into other markets. But if we then look at the markets also been holding up very well. What I mentioned earlier is the Nifty has run up well ahead of events and a lot of expectations. So you will get periods of consolidation, you will get some periods of underperformance consolidation. So this is one of the markets where the confidence in saying buy the dip, buy corrections, buy consolidations probably the highest. But yes you will get short-term periods of underperformance but that creates opportunities.
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