'It's consolidation time, we may not see a further slide'

15 Apr, 2008, 2130 hrs IST,Deeptha Rajkumar, TNN

The overweight position on India has been reduced, and from a net flow perspective, in emerging markets, the beneficiaries have been Thailand, Taiwan and Pakistan, says Stuart Smythe, ED, head-equities, Macquarie Capital Securities. In conversation with ET, Mr Smythe spoke of how a volatile currency, inflation, the possibility of political change plus the changing regulatory landscape in a de-risking environment all add up to a reasonably benign outlook on India.

Where do you think the market is right now and where is it headed?

I think, you will see the market remain relatively benign. There is a confluence of upcoming factors that is likely to impact direction. One, very high inflation, which looks like it’s going to get close to double digit, and two, without question a GDP growth scenario which is going to slow. Now, the mechanisms by which you control inflation and GDP don’t always work in tandem. Emerging markets typically dislike three things — volatile currency, inflation risks and possibility of a changing political landscape. The only three markets, which are close to positive in the entire region, are Pakistan, Thailand and Taiwan. So, while India has these things in the pipeline for the next 9-12 months, I don’t think you are going to see any huge level of out performance coming to play.


So, does that mean we are in a bear market?

No, I don’t think we are in a bear market. I think we are in a consolidation phase which is good. If the economy slows down by 100 bps, everyone gets space to breathe. So, I am not particularly concerned. We are still talking 7-8% growth. In Europe and the US, you barely have 1-2% growth, so you are still talking very strong growth. It’s just the capital market that is seeing a realignment of funds. You are seeing a derating or derisking of flow.

inteview Extracts from :Economictimes