Mkt may correct upto 10%; will still buy India: Macquarie

Latha: What is your sense about the selloff we have seen in equity markets in Asia? Is this going to get extended like we saw it in June-July last year?

A: It could be extended and really a lot depends on how things play in the US now with the Federal Reserve. Obviously there are concerns that the path of US tapering may be changed or altered. But at this point in time, it is still playing out on individual basis and those are the most affected economies, Asia particularly is feeling the brunt of that slowdown.

Sonia: What could the quantum of this damage be? Is it just one of those 5-10 percent bull market corrections that global equities are going through or do you think it could be a reversal of a trend?

A: It is more likely to be a 5-10 percent. There were some fairly lofty earnings expectations built up at the end of last year in equity markets. Those expectations are now being unwound.

Of course it is being complicated by what we are seeing in United States with the run of data and that data is being infected or afflicted by the very severe weather conditions and it is probably going to be another month before we see a clearer run of data in the US as well.

I do not think it is fair to say that what we are seeing in EMs is contaminating the US at this point in time, it is just that we have got a conjunction of events that are adding to that risk sensitivity that we have seen in markets in the last couple of weeks.

Latha: Which are your top three emerging markets and how would you approach the Indian markets now? Is there a lot of downside left or are you a buyer now?

A: I think what is going to happen overall in EMs is that there is going to be an increasing tearing or differentiation of risk and of risk assets in those markets whereas previously, we had a rising tide lifting all boats.

India could well emerge in the middle of the field in relation to that tearing. A lot depends on how we move on the political front, on the policy front generally and steps that are taken to actually address the twin deficits in India.

If nothing is done and it is seen to be being exacerbated, then there will be a further scoring down of the Indian market. The markets that are best placed are a lot of the smaller EMs such as the Philippines, Thailand, not withstanding the current political ructions. Their economic base is much smaller than the key EMs, but the financial underpinnings or fundamentals are certainly in a lot healthier state.

Indonesia is another market of course which does need to embark on some fairly sizable structural reforms. Markets in Southeast Asia like Malaysia and Singapore are probably pretty well served, particularly on the traded services side as that continues to pick up and some currency depreciation is certainly going to help that part of the economy.

Sonia: Would you buy India now?

A: I would certainly be buying, looking to buy defensives. I would be looking to buy those stocks that are generating good revenue growth in a structural sense from the domestic demand underpinnings of the Indian economy.

I guess that is the same structural story I have had for a number of years now. India is for all intensive purposes, a domestic demand economy. Therefore, it is going to be impacted by things that impact on the domestic demand side of the economy favourably or negatively. The good part about that is it provides a bit more of a stable base and a structurally broadening base for earnings growth in those companies.