Andrew Holland, CEO-Equities, Ambit Capital spoke to Krishna Merchant on the current market scenario and macro economic outlook of the global economies.
How high is the probability of a double-dip recession in the West?
The second round of quantitative easing (QE2) had propped up the equities and commodities across the world but did not really help the US economy in terms of job creation. The markets are reacting negatively to the fact that there is no third round.
Also in Europe, the European Central Bank (ECB) has not taken any significant action, and investors lack confidence.
There is no data which indicates that there will be a double-dip recession. I do not think that the Federal Reserve (Fed) will pump money into the system. Instead, the focus will be on job creation.
We expect the US economy to muddle through, but we still need to see a decisive action from the European Union (EU) to stop the contagion.
How will Indian markets get affected if the growth slows in the West?
India will benefit from lower commodity prices, especially the decline oil prices will bring down inflation considerably.
Even if there is a double dip recession in the West, India may not be as get affected because it is a domestic consumption story. The Reserve Bank of India (RBI) may cut interest rates rather than hike rates given the dip in commodity prices.
Is there any similarity between the sharp decline the global markets seen yesterday and today to what happened in 2008?
We saw a similar situation in August 2010 when the Dow Jones Industrial Average (DJIA) slumped. Most markets across the world rallied post the stimulus package. However, there were side effects of quantitative easing because all the money went into commodities.
Where do see the Indian markets by FY12-end?
If the ECB buys Italian and Spanish bonds and takes the right steps to protect the contagion from spreading, and the US Federal Reserve comes out with package which helps job creation, the Indian markets may head towards 20,000 by FY12-end.
In such a scenario of risk aversion, what is your advice for investors?
Since it is difficult to find a bottom in the markets, the investors should regular invest in a fund that makes regular investments in equities.
What are the sectors that investors should look at?
Most metal stocks will remain under pressure due to slower growth worldwide. The metal prices may come off, which may reduce their profitability of these companies.
However, auto companies that have taken a margin hit may get some relief from lower commodity prices.
For the information technology (IT) companies, unless there is a big global downturn, the stocks are looking at attractive at these levels from a long-term investment perspective. We also like interest rate sensitive sectors as the RBI may pause the rate tightening cycle.
