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Last Updated : Oct 25, 2018 02:59 PM IST | Source: CNBC-TV18

India’s problems not entirely because of the world or oil, it's due to our 'laid back' regulators: Samir Arora

"This month, India is down nearly as much as last month or maybe little less, at least it is in line with the world or maybe even slightly better." Arora said.

CNBC TV18 @moneycontrolcom

Global equity markets are facing a sell-off as spooked investors are opting for safety on global economic and political worries.

The S&P 500 and the Dow Jones Industrial Average erased their gains for the year while Nasdaq confirmed a correction and the CBOE volatility index registered its highest close since February.

CNBC-TV18 spoke to Samir Arora, founder and fund manager of Helios Capital and Adrian Mowat, EM equity strategist, to get a sense of the current turmoil in the equity markets and stock outlook.

“I think that the US will recover. The earnings growth in US is quite strong and even if people want to move into dollar assets, it will help both US equity and fixed income and US equity is very attractive. I don’t think that the earnings will disappoint much," Arora said on October 25.

With regards to India, Arora said, "Coming to India, like we learnt in 2008, if oil crashes, it doesn’t help but if oil corrects and the rest of the market stabilise then it obviously is a gift to India. So for the last four-five days, I was thinking that India will do better but it hasn’t, although yesterday it was okay. So right now, I am not excited or feeling depressed. We have to see it for a few more days but India could solve some of its own problems, which it doesn’t seem to be grappling properly. So that is another problem that not 100 percent of India’s problems are because of the world or oil, it is to do with the fact that our regulators are too laid back."

Talking about the correction in Indian shares, Arora said, “This month is better than last month because last month, India was standing out and it looked as if it is completely India’s problem, which makes it more glaring, more questions, more pressure on fund managers. This month, although, India is down nearly as much as last month or maybe little less, at least it is in line with the world or maybe even slightly better."

“In general, I would think that India has three problems – first is global problem if it is that we are part of the world, which I think we were anyway not participating on the upside. Second was oil, which now looks a little bit decent, USD 75 per barrel after having seen USD 80 per barrel looks like a big relief. Third is our own creation of the way we are sitting on our hands in terms of resolving the non-banking financial companies (NBFCs) issues and thinking suddenly that we cannot bailout because it is a private company or that is a sector, which gain excesses,” he added.

According to Adrian Mowat, the catalyst for the sell-off was the sharp move in 10-year bond yields that occurred in January and then again in September, and mixed earnings. The correction, however, offers good opportunity to buy, believes Mowat.

"The result season, one could argue was probably just as mixed going back to the January-February sell-off as it is today. We have had some good results as well as some poor results. As I think about it, I think it is going to prove to be a bit like sell-off we saw in February, it will take the markets sometimes to gather its nerves but I think on a 12-months view, it will make sense buying into this,” said Mowat.

“What I do think is very different today versus the beginning of 2018 was in 2018 two very powerful forces were at work. One was that US interest rate differentials were moving rapidly in favour of the dollar, the other thing was that earnings growth courtesy of its tax cut meant that the EPS growth in the US exceeded the EPS growth in emerging markets by some 14 percent this year. Thinking about 2019 and that is what market should be doing in the final quarter of 2018, the earnings per share premium will move back in favour of the emerging markets. I would also argue that quite a number of the emerging market currencies have overshot on the downside relative to the dollar. So I think what is different about this sell-off is this sell-off will actually prove to be a catalyst for a rotation of some capital out of the US into other equity markets,” Mowat added.


Source: CNBC-TV18.
First Published on Oct 25, 2018 11:09 am
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