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Mark Matthews: Well, we were anticipating a correction around now and we thought the CPI reading for January could be a catalyst, but of course the market was up last night. So, maybe when NVIDIA reports on Wednesday, if for any reason their actual results or guidance are not quite as good as what people think, we could have a correction. But I must say that at least for now, the market seems very strong.
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What is driving the market? Do you think this is pure concentration which is happening in let us say in those magnificent seven stocks that keep on going higher and the market in a sense is just moving because of that entire concentrated factor?
Mark Matthews: I believe that the main reason is the Mag-7, as you say. Their earnings growth year-on-year was missing. As I said, NVIDIA does not report until next week. But if we use the consensus estimates for NVIDIA, the aggregate year-on-year profit growth of those seven stocks will be 49%, which is of course an incredibly strong number and that is, you are right what is driving the market.
What really is the construct right now? I am going to keep the US equities outside of the ambit, but the call on China for instance wherein a meaningful recovery seems still far away. Japan, as we speak, has already slipped into recession, losing its third biggest economy title already. How do you think the Far East is panning out?
Mark Matthews: I was not aware that Japan is in recession. I have no comment on that. It kind of surprises me. I mean, their economy seems good to me. But the big one, of course, is China and I think there is a kind of incongruity in a lot of what we are seeing in China because on the one hand the consumer confidence is clearly extremely weak, as is business confidence. But on the other hand, there are anecdotal signals that at least somebody is out there spending money. The cinemas are full. Domestic tourism is very strong and there are several other things like that.
So, I would say with China is still going to be weighed down by all of the regulatory changes and corruption crackdown, etc, the uncertainty of the policy. You wake up one morning and you do not know what it is going to be. But on the other hand, on the 22nd of January, the prime minister said that they want to stabilise the stock market and in China, the concept of face is a very important concept and you do not want to lose face, do not want to embarrass yourself. So, if they allow the stock market indices to go significantly below where they were on the 22nd of January, that is a big loss of face.
Just to round off my thoughts, on the one hand the Chinese economy is still pretty bad because of a lot of the policy but on the other ,hand they want the market to be stable and so I think that it will be stable actually.
What could be the next big imminent or inherent risk for the Indian markets?Is it largely likely to emanate from geopolitical concerns or fears of a slowdown across the globe or that it could be something domestic?
Mark Matthews: I struggle to identify a risk in India and I am sure there are many risks out there that could pop up suddenly and I just cannot identify one. I suppose that there was a lot of foreign inflows at the end of last year and if, for whatever reason, those foreigners wanted to sell, that could certainly push the market down.
I do not really see the reason why they would want to sell. Of course, if you have a big global sell-off, history shows us that global investors tend to de-risk in emerging markets and so if there is a big global sell-off, I do believe India would be part of that now simply because quite a lot of money went in the last few months of last year and it is, let us face it, fairly fair-weather-friend-type money and I mean, it will leave if it worries about risk.When it comes to India, you would think the big trend would be to stay within financials because financials have taken a bit of a backseat so to speak. It is actually the capex-driven themes, government-owned companies which have been performing rather well as opposed to what banks in particular for instance have been doing.
Mark Matthews: Yes, you are right and precisely because of that underperformance, we like them. They are inexpensive and they are indirectly a proxy on the capex story in the sense that if companies invest more in factories, for example, or if there is more infrastructure built ultimately some of that will have to be financed by loans from banks. I think they are still an integral part of the Indian growth story and yes, we still like them. They are our first port of call in the market.
What is the outlook then when it comes to the entire IT basket, owing to the kind of quarterly performance that they have delivered? Do you believe that this is a space best avoided?
Mark Matthews: We are not big on IT because we are sensing a lot of delays in the American companies. They are not coming through on the commitments they have made for various business deals with the Indian IT sector. IT has always been a leveraged play on the US and I suppose I am contradicting myself a little because we do like the US market. But I would rather, if I am invested in India, just be invested in the Indian domestic story. I can get my US exposure in the United States itself.
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