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Arindam Ghosh of Mirae Asset Management expects the risk re-pricing to begin. If crude prices stay at current levels, he thinks there would be under -recoveries to the level of USD 60 billion. The consumption of commodities will go up considerably, he added.

Excerpts from CNBC-TV18’s exclusive interview with Arindam Ghosh:

Q: What might we do for the foreseeable future? Is the worst of the pressure behind us you think?

A: The worst is behind us. Clearly we are getting to see some kind of a pullback, which is now starting to happen even in the US markets. There is a strong case for reprising now to start happening and over a one-year period the risk reward definitely looks good for the Indian market.

Having said that there are definitely challenges in the short-term, the macro economic conditions have been worsening at the margin in the short-term. But clearly one needs to look beyond and needs to take a long-term view on Indian market. The core is very much intact and whilst you have these factors like inflation, oil and interest rates and typically these are all global influences now which are playing a big role and impact on the Indian market. But one needs to look beyond and essentially follow market neutral strategic.

Q: How is the mood of the global investor towards India and Japanese but across the region. We have seen exodus of money. Are people looking for further underweight their India position over the next few months?

A: We have seen some amount of unwinding positions in the past but these investors do have a long-term view on Indian market. Essentially people are ready to pay a certain premium for the Indian market largely because we are a diversified economy; our dependence on exports is much lower. Typically from US perspective our view is that money has to ultimately find its place and money has to move to markets which are relatively attractive now.

In the past we have seen the US markets to be relatively much more attractive and therefore typically we have seen a period of complete risk aversion when money has actually stayed in that market. But the sense we are trying to get now from the west is that probably we would see a certain amount of risk reprising starting to happen and therefore allocation, our belief is that it’s going to increase to the emerging markets including India.

Q: Can you take a sanguine call on the Indian equity market or does it have to be a call on crude as well because Gastrom over the weekend is talking about USD 250 crude. Would any of your fundamental assumptions hold if crude were to indeed go up to between USD 150-200 or essentially that is a call you need to take, to take a call on equities in India over the next one year?

A: Crude will continue to play a big role in the short-term movements of the Indian market. Currently our view is that if the prices stay at current levels, we would probably see under recoveries to the extent of about USD 60 billion.

What worries on the crude side is if one would analyse - one will see that while the move up has been almost by about USD 60-70 per barrel but a large part of this has been on the back of weakening dollar. But surprisingly in the recent past whilst the dollar has been kind of strengthening a little but inspite of that the crude price have continued to be inching up. There is a lot of speculative position which is been building up in the oil futures. And probably if we get to see some unwinding of these speculative positions happening we may see a cooling off to happen on crude prices.

Geopolitical tensions in the past - we do not look at that has one of the big drivers. We have seen some of the Gulf Cooperation Council (GCC) countries now announcing their policies of kind of trying to boost supply. But overall our view is that probably the impact on prices going to be negligible. So more of speculative build-up and unwinding of that would probably help to correct the situation of the imbalances which now exists. But if one has to look at different asset classes, we feel that commodity which includes crude is the hot asset class. And that is because most of the other asset classes have been showing negative trend and that is something we believe is going to continue in the immediate foreseeable future.

Q: Is that something you would translate into the equity market as well, change your portfolio around a bit to lean towards commodities, whether it is oil or metals or even soft commodities?

A: We are coming out with the commodity stock fund clearly because we believe that the demand-supply mismatch is going to continue for a certain period of time. And on the strength of that, we believe that consumption is going to increase as developing economies go up the curve. Also as income levels go up in the developing economies, the consumption is going to go up. So whether it is crude, food grain or even your consumption of textiles would ensure that commodity prices continue to stay up.

So for this particular fund that we are going to be coming out of with of course it is going to be largely across both hard and soft commodities. As far as our existing funds are concerned, we have been seeing a certain amount of rotation of sector but that is largely because I think by and large everyone has been taking a kind of momentum approach to investing rather than long-term investing. Because if you look at the last six months nothing has really changed in terms of sectors but in spite of that many sectors, which were kind of looking very hot prior to January 21 has suddenly come off. So I think if one looks at one year horizon and makes right investment decisions and not decisions, which are guided more by momentum, I would imagine that even some of the sectors which are now looking negative over a one-year perspective are going to be long-term drivers of growth.

Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol.com