After a strong start to 2018, markets have been on a roller-coaster ride over the past few weeks. MARC FABER, Editor and Publisher of ‘The Gloom, Boom & Doom Report’ in conversation with Puneet Wadhwa says that he is not in a rush to invest right now as he expects the markets to drift lower going ahead. He, however, remains bullish on Indian equities from a long-term perspective. Edited excerpts:
What is your market outlook for the next one year?
Calendar year 2017 (CY17) was a fabulous year for global equity markets. In dollar terms, Indian markets were up around 35 per cent, Vietnam was up over 50 per cent, European markets gained around 25 – 30 per cent. Most Asian markets, too, gained in that range. In early January, the US markets went ballistic and saw a secular rise. In US, we haven’t had a correction of over five per cent for the longest period ever. It was in February 2016 when we made a low of 1,810 on the S&P. Since then, the index has not corrected even 10 per cent. The market became overbought, the overall sentiment was optimistic despite high valuations.
Even in India, everyone was piling on to the markets to get a quick return. The correction started after January 26 with the S&P hitting 2872 levels. We have seen a rebound in the last few days in the US, but I don’t see it lasting for a long time. On the contrary, I expect them to drift lower. Now, whether we dip 10 per cent or 20 per cent, it is difficult to predict right now. That said, for now, we should assume that we have seen the new high.
How do you see the Indian markets play out?
The Indian markets, too, have been extremely strong in the last two years with the S&P BSE Sensex hitting a high of 36,443 on January 29. That’s partly due to the Indian currency (Indian rupee) as well, which remained strong. Though we have corrected around 10 per cent from the highs, the recovery has not been sharp. The likely direction for Indian equities is lower. We also now have a fraud case with the state-owned bank – Punjab National Bank (PNB), which will keep the market sentiment in check.
How much lower can we go from here?
The S&P BSE Sensex was around the 23,000 mark two years ago and has rallied sharply from there. The next support for the market, in my view, is around 30,000 levels. If that breaks, we can easily drop to around 27,000 to 28,000 levels. It is imperative that the index does not break the 30,000 mark. The minimum downside expectation from the current levels on the S&P BSE Sensex is 30,000.
In the last few days, the rupee has been weakening. If this continues, it would be an incentive for foreigners to lose positions in India. That said, I am bullish on Indian equities from a long-term perspective. There has been meaningful progress as regards policy measures in India over the last few years.
Has the recent bank scam in India shaken your confidence in the country’s banking and financial system?
There are two ingredients for a correction.
One is the heavy public participation, which we have had now. Heavy participation can take markets to top out. The other is any major probe / scam / fraud. And, it is usually not just one fraud. Once a fraud breaks out, there are a series of frauds / scams that break out. In the case of the recent fraud at PNB, it does not impact the economy, but it does impact the confidence in the country’s financial system. Whenever a fraud happens, be it Enron or in the case of PNB, it is not viewed as a good development for the financial markets. Usually, there are more that come to the surface.
What is your re-introduction of long term capital gains tax in India?
I am bullish on the Indian equites from a long-term perspective. That said, it is not easy for the Narendra Modi led government to implement all the reforms in one shot. Over a period of time, a lot of things have improved. That said, I am against any kind of tax, be it LTCG, short-term capital gains tax (STCG), excise duty, or Value added tax (VAT).
So, what’s your message to investors given the road ahead for equity and financial markets?
We don’t know how the world will look like in five years. There can be some big geopolitical issues coming or there can be some more economic expansion. In June 2018, we will have the longest streak of global economic expansion in the US that is being financed by debt. I would not play a hero here and put all my money in equities / stocks. It is advisable to diversify. Personally, I am not in a hurry to invest right now.
When I look at India, I still think there is a huge opportunity in Indian property – not necessarily in the metros like Mumbai, but outside main cities. The government eventually will have to build new cities and infrastructure. With the focus on affordable housing, there is a big opportunity for investors here.
There are ample of opportunities for the companies to benefit from an increase in rural income. In the next few years, though the overall stock market may not perform very well at the macro level, it will definitely become a stock pickers market. There will be companies that will do very well, and those who will be laggards. One will need to take an investment call accordingly.
Which regions globally are you investing in now?
I always have a diversified portfolio of real estate, precious metals, bonds, equities etc. Over the last two months, I have only one stock and that was a company in Indonesia in the consumer lending segment. Though I did not buy with great enthusiasm, the stock was available at a much attractive valuation as compared to similar companies in the other Asian markets.
Otherwise, I have mostly been reviewing my positions. I don’t think the equity markets, including India, will recover to the recent highs for quite some time now. Like I said, I am not in a hurry to invest right now. January 2018-end is kind a kind of inverse mirror image of March 2009 when the investors were very bearish and the markets were incredibly oversold. This time around, the markets were overbought and the overall sentiment was still positive.
What is your market outlook for the next one year?
Calendar year 2017 (CY17) was a fabulous year for global equity markets. In dollar terms, Indian markets were up around 35 per cent, Vietnam was up over 50 per cent, European markets gained around 25 – 30 per cent. Most Asian markets, too, gained in that range. In early January, the US markets went ballistic and saw a secular rise. In US, we haven’t had a correction of over five per cent for the longest period ever. It was in February 2016 when we made a low of 1,810 on the S&P. Since then, the index has not corrected even 10 per cent. The market became overbought, the overall sentiment was optimistic despite high valuations.
Even in India, everyone was piling on to the markets to get a quick return. The correction started after January 26 with the S&P hitting 2872 levels. We have seen a rebound in the last few days in the US, but I don’t see it lasting for a long time. On the contrary, I expect them to drift lower. Now, whether we dip 10 per cent or 20 per cent, it is difficult to predict right now. That said, for now, we should assume that we have seen the new high.
How do you see the Indian markets play out?
The Indian markets, too, have been extremely strong in the last two years with the S&P BSE Sensex hitting a high of 36,443 on January 29. That’s partly due to the Indian currency (Indian rupee) as well, which remained strong. Though we have corrected around 10 per cent from the highs, the recovery has not been sharp. The likely direction for Indian equities is lower. We also now have a fraud case with the state-owned bank – Punjab National Bank (PNB), which will keep the market sentiment in check.
How much lower can we go from here?
The S&P BSE Sensex was around the 23,000 mark two years ago and has rallied sharply from there. The next support for the market, in my view, is around 30,000 levels. If that breaks, we can easily drop to around 27,000 to 28,000 levels. It is imperative that the index does not break the 30,000 mark. The minimum downside expectation from the current levels on the S&P BSE Sensex is 30,000.
In the last few days, the rupee has been weakening. If this continues, it would be an incentive for foreigners to lose positions in India. That said, I am bullish on Indian equities from a long-term perspective. There has been meaningful progress as regards policy measures in India over the last few years.
Has the recent bank scam in India shaken your confidence in the country’s banking and financial system?
There are two ingredients for a correction.
One is the heavy public participation, which we have had now. Heavy participation can take markets to top out. The other is any major probe / scam / fraud. And, it is usually not just one fraud. Once a fraud breaks out, there are a series of frauds / scams that break out. In the case of the recent fraud at PNB, it does not impact the economy, but it does impact the confidence in the country’s financial system. Whenever a fraud happens, be it Enron or in the case of PNB, it is not viewed as a good development for the financial markets. Usually, there are more that come to the surface.
What is your re-introduction of long term capital gains tax in India?
I am bullish on the Indian equites from a long-term perspective. That said, it is not easy for the Narendra Modi led government to implement all the reforms in one shot. Over a period of time, a lot of things have improved. That said, I am against any kind of tax, be it LTCG, short-term capital gains tax (STCG), excise duty, or Value added tax (VAT).
So, what’s your message to investors given the road ahead for equity and financial markets?
We don’t know how the world will look like in five years. There can be some big geopolitical issues coming or there can be some more economic expansion. In June 2018, we will have the longest streak of global economic expansion in the US that is being financed by debt. I would not play a hero here and put all my money in equities / stocks. It is advisable to diversify. Personally, I am not in a hurry to invest right now.
When I look at India, I still think there is a huge opportunity in Indian property – not necessarily in the metros like Mumbai, but outside main cities. The government eventually will have to build new cities and infrastructure. With the focus on affordable housing, there is a big opportunity for investors here.
There are ample of opportunities for the companies to benefit from an increase in rural income. In the next few years, though the overall stock market may not perform very well at the macro level, it will definitely become a stock pickers market. There will be companies that will do very well, and those who will be laggards. One will need to take an investment call accordingly.
Which regions globally are you investing in now?
I always have a diversified portfolio of real estate, precious metals, bonds, equities etc. Over the last two months, I have only one stock and that was a company in Indonesia in the consumer lending segment. Though I did not buy with great enthusiasm, the stock was available at a much attractive valuation as compared to similar companies in the other Asian markets.
Otherwise, I have mostly been reviewing my positions. I don’t think the equity markets, including India, will recover to the recent highs for quite some time now. Like I said, I am not in a hurry to invest right now. January 2018-end is kind a kind of inverse mirror image of March 2009 when the investors were very bearish and the markets were incredibly oversold. This time around, the markets were overbought and the overall sentiment was still positive.
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