Interview: Spencer White, Chief Equity Strategist - Merrill Lynch
(TV18 23/03/2006) Mumbai - 'India at 30% premium to rest of Asia'
Spencer White, Chief Equity Strategist-Asia Pacific at Merrill Lynch is not as bearish on India as Morgan Stanley. White says that India is at a 30% premium to the rest of Asia.
Further, White believes that the Sensex will struggle over 1-2 quarters and earnings momentum will slow down.
Excerpts from CNBC - TV18’s exclusive interview with Spencer White:
Q: What is your view on India now at these levels?
A: We have been watching with great interest to see whether the Sensex was going to pass the level of KSE 100 of Pakistan, but it looks like for the time being it is not going to happen. But as far as the index is concerned, we are not as bearish as Morgan Stanley. But I think there is certainly call for caution at the levels that we are at. We are very comfortable with the growth story in India. India had almost 2 billion dollars of foreign portfolio inflows in the last month. I think a lot of that was BRICs fund.
Now the index is trading at a 30% premium to the rest of Asia. Only Japan is more expensive than India now. So my sense is that Sensex is going to struggle over the next 1- 2 quarters to really make any positive headway from here. Because it is not cheap, a lot of future growth has been forecast and earning momentum will slow.
It is very hard from my perspective for institutional clients around the world to find any incremental buyers at these sort of levels. If the markets were to come back, there are buyers who were underweight. So I don’t think there is significant downside but from these levels, I think we are going to have pull backs.
Q: What would be a tactical view in India? On one hand you are cautious about valuations and on the other hand, you have weight against liquidity, which continues to come in? We have also been talking to people who have been raising fresh money for India like Petro dollars, which could come in the next 2 – 3 months.
A: That is also right and it is impossible to gauge either the magnitude or the timing of that capital. I think it is very right to highlight the petro dollars and there continues to be a recycling of that capital through markets in Asia. India is a pretty obvious choice but ultimately it is not valuation insensitive.
I really struggle to believe that the market will make significant progress from here. If there is any sort of stumble either with rates increasing more than people expect, or we begin to see pricing pressure come through, the margins as we see some earnings misses coming through, then at these sort of levels, the market and companies are going to be vulnerable.
Q: Where is the space you would go and book your profits first and foremost?
A: To be honest just the market as a whole looks pretty pricey. Some of the banks and consumer durables are expensive. It is very stock specific. As I look at it I can still find some banks, which are interesting, some of the software companies, the capital goods, sort of infrastructure space because there is so much growth. So you would basically be balancing valuations versus the price performance over the last six months. The entire Index is up about 16-17% year to date. So the momentum will have to pull back.
Q: Third Fed meeting coming up on the March 28. Is that the most important catalyst for markets like India as well and what do you expect them to do?
A: It is very important. Obviously there is an intense focus on what happens after that. Is that going to be the last hike, and if it is and the Fed goes on hold what happens next? Is it on hold with a prelude to an eventual cut. By the year end, Merrill Lynch's view is that there will always be a pause and potentially rates actually could go higher.
Spencer White, Chief Equity Strategist-Asia Pacific at Merrill Lynch is not as bearish on India as Morgan Stanley. White says that India is at a 30% premium to the rest of Asia.
Further, White believes that the Sensex will struggle over 1-2 quarters and earnings momentum will slow down.
Excerpts from CNBC - TV18’s exclusive interview with Spencer White:
Q: What is your view on India now at these levels?
A: We have been watching with great interest to see whether the Sensex was going to pass the level of KSE 100 of Pakistan, but it looks like for the time being it is not going to happen. But as far as the index is concerned, we are not as bearish as Morgan Stanley. But I think there is certainly call for caution at the levels that we are at. We are very comfortable with the growth story in India. India had almost 2 billion dollars of foreign portfolio inflows in the last month. I think a lot of that was BRICs fund.
Now the index is trading at a 30% premium to the rest of Asia. Only Japan is more expensive than India now. So my sense is that Sensex is going to struggle over the next 1- 2 quarters to really make any positive headway from here. Because it is not cheap, a lot of future growth has been forecast and earning momentum will slow.
It is very hard from my perspective for institutional clients around the world to find any incremental buyers at these sort of levels. If the markets were to come back, there are buyers who were underweight. So I don’t think there is significant downside but from these levels, I think we are going to have pull backs.
Q: What would be a tactical view in India? On one hand you are cautious about valuations and on the other hand, you have weight against liquidity, which continues to come in? We have also been talking to people who have been raising fresh money for India like Petro dollars, which could come in the next 2 – 3 months.
A: That is also right and it is impossible to gauge either the magnitude or the timing of that capital. I think it is very right to highlight the petro dollars and there continues to be a recycling of that capital through markets in Asia. India is a pretty obvious choice but ultimately it is not valuation insensitive.
I really struggle to believe that the market will make significant progress from here. If there is any sort of stumble either with rates increasing more than people expect, or we begin to see pricing pressure come through, the margins as we see some earnings misses coming through, then at these sort of levels, the market and companies are going to be vulnerable.
Q: Where is the space you would go and book your profits first and foremost?
A: To be honest just the market as a whole looks pretty pricey. Some of the banks and consumer durables are expensive. It is very stock specific. As I look at it I can still find some banks, which are interesting, some of the software companies, the capital goods, sort of infrastructure space because there is so much growth. So you would basically be balancing valuations versus the price performance over the last six months. The entire Index is up about 16-17% year to date. So the momentum will have to pull back.
Q: Third Fed meeting coming up on the March 28. Is that the most important catalyst for markets like India as well and what do you expect them to do?
A: It is very important. Obviously there is an intense focus on what happens after that. Is that going to be the last hike, and if it is and the Fed goes on hold what happens next? Is it on hold with a prelude to an eventual cut. By the year end, Merrill Lynch's view is that there will always be a pause and potentially rates actually could go higher.
posted by InCar Group Press Room at 21:45
0 Comments:
Post a Comment
<< Home