Correction on Dalal St a good thing

Most of it is quite logical. The big story is the recovery of the United States. Many believed that the US would keep the interest rates very low for a long time and so people were putting money in some of these EMs without really thinking. The recovery in the US and,in particular,the doubling of the two-year nodule is forcing people to rethink. Within the EMs,markets that are expensive and grappling with inflation are seeing the biggest fallouts. The Indian market did very well last year and it doesn’t look cheap; so from a longer term perspective,some correction is probably a good thing.

What you feel about the world economy right now and equities in general?

The big story to me is that the US and the developed world are on their way back. These economies are gaining momentum and,specifically for the US,it looks good.

While the US is on its way back,there is the underlying strength of many of the Bric nations to consider. I think we are looking at the world economy clocking close to 5% GDP growth this year and the next. So the equities are going to continue rallying. I thought at the start of the year we will have a 20% rally in the S&P. We’ve had 5% of that or a bit more,so we have got plenty more to go for. So I think that is going to be the case for many,many markets in the developed and in the emerging world.

Sell emerging markets,buy America … Do you agree?

I would differ with a simple generalised view. First of all this is just a cyclical acknowledgement of the US doing better. Once the markets have adjusted to the possibility that the US is going to grow about 3.5% this year and the next,I am not quite sure what is so great about the US story related to elsewhere. Especially because the long term prospects for India and many other growth economies is just so powerful. Secondly,if you look within EMs,not every market is down. One of the most interesting things of the past week is the very strong performance of China after the New Chinese year. China today is showing gains of about 4%,so the country is not doing badly.

Having said that,I do think that over the next few weeks the US and similar other developed markets will probably be the strongest ones in the world. But the second half of the year could be very different. As and when we see evidence of inflation starting to peak,many of the EMs,including India,could make a comeback.

Which among the Next-11,Bric and EMs could give the best returns in the next one or two years?

The Next -11 group. The Egypt development could be the beginning of a sort of a Berlin Wall,a kind of tight moment for North Africa and the Middle East. The Next -11 group has Egypt and Nigeria,countries I wouldn’t describe as poised for growth. But the group also has further growth economies such as Korea,Mexico,Indonesia and Turkey. So from a longer term perspective,this is something that the investors should be looking out for. Coming to the next 1 to 2 years,Russia I think is very cheap.

They are doing things to reduce the economy’s dependency on oil and gas and are trying to adopt a newer approach to inviting western countries. We see that with BP and Pepsicola and I think the Russian market is a good place to be in.

It will give the best returns among Bric countries in the next 1 to 2 years. India may lag compared to Russia and China,but I think it will recover from its current weakness. And I suspect that by the time the year is over the Indian market will be assuring a small positive net performance.