 "Reaction to US Fed's statements can't be fundamentally justified: Samir Arora")
What is your reaction to the US Federal Reserve's statements regarding the quantitative easing (QE3)? Do you think it is an ill-timed move given the fragile state of US and the world economy? Are the markets over-reacting to the developments?
In the short-term we are all obviously feeling the pain of weak markets and weak currency. However, beyond the immediate short-term, I do not feel so bearish and I am, in fact, quite positive on Indian and global markets.
Unfortunately, in the past few years financial market participants have become very short-term oriented and follow each other like a herd. I think that the US Federal Reserve (US Fed) did not surprise the markets as negatively as the markets have responded.
For example, most strategists have stated in their notes that they expected the tapering of the third round of quantitative easing (QE3) to start in December 2013 and are therefore negatively surprised that this may start three months earlier. Why three months earlier should matter so much, I am unable to understand.
China June flash HSBC PMI hit a nine-month low on weak demand, data showed today. What is your assessment of how things are shaping up for China?
I have not been too bullish on China for in the past few years they have clearly over invested in economically shaky projects in an attempt to keep the growth high and this was bound to catch up with them sometime. Any slowdown in China, and therefore in their consumption of commodities, helps India that needs cheap commodities to help bring down in current and fiscal account deficits.
What about Japan? Do you believe that Abenomics will be able to resolve the economic situation the island nation is in right now?
I believe that Japan is a good place to invest right now.
What do these developments mean for emerging markets like India that is also grappling with Rupee's slide amid sticky inflation and political uncertainty?
Nothing is good for any market in the short-term. However, I do not feel so negative on India these days and feel that many Indian companies are worth buying over the next few weeks.
Do you think that we could see a heavier outflow of funds from the EM bonds to the developed world? So, what happens to the rupee and the bond yields in India then in the near-to-medium term? What are the reasons for your belief?
Difficult to state but since I believe that the short-term reaction to US Fed's statements cannot be fundamentally justified, I feel that all markets should stabilise in the next few days.
Has India become less attractive now given the macros and the political landscape? Do you think that the policy-makers have failed to deliver?
Indian policy makers have failed in the sense that they took too long to focus on good economics. The current government wasted time from 2009 till mid of last year and although the Finance Minister has tried to do many positive things since then the fundamental story for many sectors/companies has become much weaker.
However, we like several Indian companies for their high quality managements, big opportunity and competitive positioning in their industry and will look to buy more in such companies if prices continue to correct.
How much worse has the road to recovery become for India Inc given the macros? By when do you think that there could be some signs visible of a recovery that eventually get built in to their stock prices?
Many Indian companies will be seriously hit due to foreign un-hedged liabilities. The distinction between strong and weaker companies will become even starker.
In terms of specific sectors and stocks, where do you see some respite from the carnage we may see over the next 6-12 months? So, should one buy them at the current levels? What about precious metals like gold & silver and crude oil?
We do not buy commodity companies. Indians anyway own a lot of gold and therefore there is no need for them to buy more. I believe that they will also help the country's economy if they buy less gold for a few months/years.