Mumbai: The markets may remain under pressure if the European crisis deepens, Munish Varma, head of global markets, India, Deutsche Bank AG, said in an interview. Edited excerpts:
How nervous is the market due to the European crisis?
In the last few weeks, we have seen significant risk aversion across all asset classes globally and people have moved out of stocks and even, in some cases, out of bonds into currencies. Euro is seeing lot of pressure, given what is happening with the sovereign situation. So nervousness in the markets (is there)...
Risk aversion: Munish Varma of Deutsche Bank AG, India.
What about risk aversion in emerging markets?
I think it has gathered pace in the last few days... In the initial days of the exposure on sovereigns or initial days of the attention on sovereign, that attention was largely focused on the Western world. But as people revaluate their asset allocation, as people revaluate the risk that they are running, people have started cutting back... In April, India on average has received $100 million (around Rs468 crore) of FIIs (foreign institutional investors) inflows daily and this month that average has actually been an outflow of $65-70 million daily. So clearly some money is being pulled out of stocks generally and some part of that pullout is happening in India as well.
Do you see the outflow gathering momentum?
As long as there is no resolution to this crisis—and I think there that will be a while before this settles down—this could well accelerate. That is, if not accelerate, this world could actually stay on its current trend as to people pulling money out because people want to see some progress in Europe in terms of a fiscal deficits that are there.
Till we start seeing some tangible signs of progress being made on that front, markets will be at risk.
India has corrected around 5-6% from the top. Do you think it could correct even more?
It is quite possible. This correction has happened, not because of something specific to India, but largely happened as a result of what is happening globally. And to the extent the issues that we have in Europe are not resolved soon and that global risk aversion continues, you could continue to see Indian market under pressure. That means, it is possible that Indian market comes off another 3-4%...
Do you still expect the Sensex to touch 22,000 this year?
As of now we are holding it, but potentially we could revise the target if this global crisis or this contagion effect drags on.. If you look at India domestically, even though there are global risk issues, there is risk aversion, there is a contagion risk arising, but the domestic plays and the domestic stories in India are quite resilient and actually have been performing quite well.