ET Now caught up with Shankar Sharma, Vice Chairman & Joint MD, First Global to seek his views on where the markets were headed in 2010 and
Where do you see the markets heading where in a surprising pullback, we have broken that resistance level that we were tracking. We are past 4900 on the Nifty. Do you actually see the markets witnessing a further correction in 2010 and what kind of returns do you expect from equities, especially in emerging markets?
The pullback was very much in order because we had sold off from 17,500 to 15,500. It can easily pull back another 200-500 points on the Sensex. This year is the down year for equities and within the context, emerging markets will do worse than the US markets. The markets that did really well in 2009, that is the BRIC pack, will actually underperform the markets. The markets that did not do that well, like Taiwan or South Korea, have relatively more stable markets than the volatile BRIC pack markets. Overall, this year is the down year for equities by and large.
When you say a down year, what kind of correction do you see both in the short-term and in the long-term?
In the short-term, we definitely do see the markets in the first half coming down 20-30% from the highs of the year, which was 17,500. The markets could easily go down to 12,000-12,500 in the first half and from there, I suspect there will be some measure of recovery. Markets could still ultimately end the year down 10-15% from the close of 2009 which may be around 16,000, but that is a long call or a long short to make just yet. For now, markets are headed lower. However, once they have reached a certain level, then we will see if things have changed enough for them to rally all the way back to close enough to the levels of 2009 December.
Do you think that's going to be a valuation call or is it going to be liquidity driven because we have also just had news that LIC would be pumping in another Rs 15,000 crores by the end of March and other insurance companies are waiting to put more money in. Also, FIIs are bringing in the money. Do you still see corrections coming in?
When the markets sold out 2000 points, the money was still there. These are facile arguments that liquidity ensures the markets will never fall. Throughout the history of the world, there has always been liquidity chasing markets and not markets chasing liquidity and that's the way it is. If the markets have to fall, they will fall. It does not matter whether LIC puts in $2 billion or everybody in the whole world puts in money. I do not waste my time looking at liquidity at all, it makes no difference to broad market trends at all. It might make a difference to thinly traded Z Group stock but other than that, I do not see that being a factor. The overall situation globally is probably headed to be a lot worse than what we saw in 2008. At that time, particularly the second half, we saw the collapse of one investment bank which was not a huge investment bank by any standards, compared to the top 3-4. It was a smallish bank but that itself was large enough to bring down markets substantially and shake the entire world financial system.
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Src: ET