Momentum is good; Sensex may hit 20,000 soon: Forsyth

Momentum is good; Sensex may hit 20,000 soon: Forsyth
2007-10-04 17:12:45 Source : Moneycontrol.com

sees a shift from the US to emerging markets. Fed's action has given a boost to global investors and they still love emrging markets.

Excerpts from CNBC-TV18's exclusive interview with Jacqueline Aldhous:

Q: Could you put into perspective what we have seen globally and even in Asia and India over the last few days in light of liquidity and do you see some of this as sustainable?

A: I think it’s sustainable over a long-term. It has been a very fast rise and there are question being asked as to - is it totally justified on the back of 50 bps rate hike by the Fed?

I think the message that Fed gave is that it will take action and I think that has given a boost to global investors and they still love emerging markets.

When you look at the relative growth emerging, in places it is at most 7% to 10%, obviously China you are talking about even upto 12% and developed markets. I think they still love the story and just see that there is a shift in the pattern away from the US to emerging.

Q: How do you interpret the kind of volatility we have seen or even the steep decline we saw in the Hang Seng both yesterday and today? Much of it was mirrored in the Indian Sensex as well and we saw two days of fairly sharp falls coming in.

A: I think one has to bear in mind that there has to be profit taking. Obviously that was a warning today in China. China has been taking measures to try and get their domestic investor frenzy away from the A-share market by opening up Hong Kong a little bit.

So you have to be careful and there will be profit taking. I think that’s been a characteristic of India, particularly maybe even more than other emerging markets, that after strong rallies, you had profit taking. This has been vying with investors looking for an entry point into the market over the longer-term.

And what is healthy is that you still have a lot of skeptics, especially on India, thinking it's expensive and they are realising that something is happening that they are missing.

It still means you still have marginal bias and there is a shift away from developed markets into emerging markets. There definitely will be a bigger part of institutional portfolios as we go forward. They were a minimal part 10 years ago, maybe 1% if you were lucky and now I see them going up closer to 15% and maybe higher.

Q: What are you expecting to see from interest rates from the ECB today and the BoJ in about 10 days and the Fed at the end of the month?

A: I don’t think, in the UK it is as interesting. We have really been quite squeezed here on rates and for all those people who don’t have fixed rate mortgages, the feeling is that they will hold and they are now actually talking about a cut and the same from the ECB. They have been talking quite firmly about raising rates, but I think the expectation is that they will hold them and we might not see a rise for some time to come. Although, we are more likely to see a rise in Europe than we are in the UK.

Already, house prices have fallen in September for the first time. Obviously, there is a great squeeze on mortgages here and lending is much harder to come by. There is also definitely a contraction in the housing market here.

Q: What are you expecting from the Fed at the end of this month?

A: Very hard to say, I think Bernanke really has to see how things settle. It really will depend on what the news flow is between now and then. Obviously, he doesn’t want to go too far and it is a very fine line. At this point it is very difficult to call.

Q: How are you looking at Indian markets one-year down the line, what kind of Sensex levels will you be looking at?

A: I think over 20,000 that would seem crazy long back, we were talking about 15K-16K, this was the level I was talking about 6 months ago and we have breached that. I think 20,000 is easy, I don’t see a problem with that. The healthy thing is that you still have a lot of skeptics and a lot of marginal bias and there is still a lot going on there, there is still a lot of momentum.

Especially with infrastructure and with jobs moving to India, which is generating a whole new generation of consumers, I think it still has momentum going the same way China has and some other emerging markets like Brazil and Russia where you have domestic consumption really kicking in.

Q: Would you like to take a shot at where you will see the rupee by December 31?

A: I was listening to someone the other day calling for 37. I think the feeling is that the dollar will decline from here partly, because you have a lot of foreign governments looking to move their assets out of dollars. Not just Asia, but some of the Middle East countries want to diversify into the euro. So I think with some of this big money supporting it over the past 8-10 years likely to flow out, it doesn’t bode very well for the dollar. Obviously growth is elsewhere.

I don’t know whether we will see 37 by the end of the year, but at some point it is possible, I believe.