|The Brave Man!!|
Sridhar Sivaram, investment director at Enam Holdings was the first person to comeup on stage and firmly indicated that we are in a bear market. In an interview given to MC, he iterated that quality of earnings reported clearly indicates that India is in a bear market. He is very clear that this is not even the time for bottom-fishing, as domestic earnings are not improving while there are strong global headwinds.
He does not expect the upcoming Budget to have any great positive surprises but fears the introduction of long term capital gains laws in some form. If long term capital gains is indeed introduced this year then it would be an absolutely inopportune time and market could even tank further 10 percent as domestic investors would shy away.
Below are his justifications of a bear market.
Most of the emerging markets are in bear market
This has been a period which has coincided with bear market for emerging markets. So, let us not forget what has happened to, say the large markets like Brazil, Russia. The currency that has devalued in all these markets we have sort of been insulated.
India is overweight, Correction is imminent
As per the Citi Group study India is overweight, average overweight is more than 750 bps. India’s weight is only seven percent which means funds are more than 14.5 percent in the global emerging markets.
That is a significantly large overweight to have in a single country. I haven’t seen such large overweight in India for a very long time. So, this is a consensus trade, there is a huge risk that this may unwind if we don’t have improved economics and financials combined together.
Emerging markets as an asset class is getting questioned and India is the last overweight within emerging markets. We haven’t seen any selling at all. So, if this happens we will see some bit of selling coming from emerging market funds who have heavily over-weighted India and some bit of rebalancing will happen and we will have to face the brunt, specially like what we are seeing in financials. Financials is the largest overweight within the overweight India and we are seeing huge selling in that.
Long term capital gains coming back?
There is a rumour about bringing long term capital gains coming back. If this comes back this is a serious threat to the Indian market because this affects the domestic investor directly.
Most of the foreign investors, at least 60 percent of the foreign investors come through a tax treaty either through Mauritius or Singapore, they may not get affected, this will affect the domestic investors.
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