London: Robert Parker, vice-chairman of asset management at Credit Suisse Group, says market activity is low despite the recent uptrend. “We are staying out of markets for the time being and will stay on the sidelines till December-end,” he says. According to Parker, the upside in the Indian market is limited in the short term. However, he remains positive on India with a three-year view. Edited excerpts of an interview:
Bit cautious: Credit Suisse’s Robert Parker says the macroeconomic background for the year as a whole will remain positive. Graham Barclay / Bloomberg
Do you sense any kind of hesitation in global market participants or do you think we can still have a strong end to the year?
If you look at the activity in the markets, despite the fact that we have still got reasonably strong equity markets over the last week or two and that we have recovered very strongly from the setback that the markets went through over the adverse news on Dubai, activity levels are low. There is clear evidence that some investors, including ourselves, are actually standing back from the market somewhat. We are not exiting, but we are taking lower risk, and adopting a more defensive profile. Certainly, our plan is to do that through most of December and January.
What is your take on the critical first quarter of 2010?
The first point to make is that the last gross domestic product (GDP) numbers we had were significantly stronger than the consensus. I would add that I thought the consensus was too pessimistic. The positive is that GDP growth in the first half of next year should maintain this sort of level. Our house forecast for growth in India over next year is 7%. If we are wrong, we could see a number closer to 8%. So my point is the macroeconomic background for the year as a whole will remain positive. The second positive is the probability of a very strong positive generation of corporate earnings growth in India in 2010 relative to 2009. My only concern is that in Q1 (first quarter) of 2010, we may go through a pause in global equity markets. Specifically to India, one area to watch may be the reaction of market...to a tightening of interest rates.
One of the features of the first quarter of next year will be a number of countries including India and China, which are likely to raise interest rates albeit slowly but that is going to put a cap on the market in the first month or two of the year.
Are the valuations we are currently trading at a big concern to you?
It would be very nice to go back into the market at much lower levels and the first point to make is that we turned—as most of your viewers would know—very positive on the Indian market in March 2009. We have maintained that positive stance up until recently—I wouldn’t say we are negative —we are just being a little bit cautious in the short term.
One of the factors obviously for that caution is that we are looking at valuation levels, which are not as high as they were in the previous bull market, but certainly we have come a long way, fast. The positive on valuations is that those valuations should be supported by strong corporate earnings growth in 2010.
So tactically then at 17,000, would you be a buyer or a seller right now?
The answer to that is that I would be a buyer if we have a reversal to 15,000-16,000. The upside in the short term in the Indian market is now somewhat limited. What you will see at least over the next few months is a lot of investors like ourselves being little bit more cautious sitting on the sidelines, looking for re-entry points. The risk of being wrong is that the market continues to power ahead but for a number of the factors I mentioned, I do think the upside is limited in the short-term, although I must emphasize that taking a two-three year view, our approach to the Indian market remains in the medium term very positive indeed.
How would you gauge liquidity interest right now? Is there a nature to it in that, is it mostly being driven by exchange-traded fund (ETF) money or are long-only funds also looking at India?
One point to make in the asset management industry worldwide is the increasing popularity of ETFs. Increasingly, you are seeing not just retail investors, but also institutional investors who, let us say, make a positive allocation decision on Asia and within Asia on India; rather than having an actively managed portfolio they would just go and buy an ETF.
Now, I think you will see one feature of markets certainly for the next two-three years will be the increased popularity of ETFs and in terms of the Indian market, I think the foreign capital flows via ETFs will be an increasing feature of that market. The bad news is that because ETFs tend to be very liquid, it might result in increased volatility in the market.