Growth prospects appear bleak: Mirae Asset

Arindam Ghosh, CEO of Mirae Asset Global Investment Management, said that prospects of growth appear bleak and that there may be deeper recession. He said the current situation could stretch for 6–8 quarters. The company, he added, has Q3 earnings estimate of 11.5% growth; and for FY09, in high single digits.

Here is a verbatim transcript of the exclusive interview with Arindam Ghosh on CNBC-TV18. Also watch the accompanying video.

Q: How would you set out the roadmap for our market from now up until the end of the year?

A: If we first look at what has been happening across the globe, and then look at India, clearly large parts of the world have got themselves into a tunnel which does not seem to have a light at the end of it.

Clearly, the optimism which was around quicker and a shallower recession, is now getting replaced increasingly by a firm belief that we are in for a longer and deeper one.

With prospects for growth now increasingly appearing to be more bleak, the economic pains are definitely going to outlast and outlive the financial market turmoil, which actually started off in August ’07.

Today if you look at the Asian markets, growth has moderated by about 4.5% and ex-India, ex-China, the growth has moderated to about 2%.

But I think overall if you look at India in the perspective of what has been happening across, India definitely is in a relative position of strength. If I have to put it in the form of a capsule, I think from credit contraction to housing market collapse, to tumbling stock markets, to widely fluctuating crude prices, and to even pirates on the sea, I think we are living in extraordinarily challenging times.

Q: How long do you think this will pan out; of course these are unprecedented times? But can you take that call that three-four quarters down the line things will improve, this is just a cyclical downturn and we will come out of it okay in a few quarters, or this is still very much in unpredictable zone?

A: I would say it is difficult to take a call right now. Our baseline estimate is that it could stretch to six-eight quarters on a forward basis.

Q: Do you take the usual bear market call now then as an investor that you have done most of the price correction, start buying and you will make money in twelve-eighteen months or is this a different kind of situation where you cannot take that call with certainty?

A: Our view is that a significant amount of price correction has already happened. I think from where the current index levels are, the downside appears to be pretty much restricted. At the worst, it maybe a 10-15% slide from hereon.

But our belief is that once we have the decibel levels of the good and bad news kind of starting to come down, that is when we will see volatility coming down, and probably the market is going to settle in a certain band.

If we have to take a call on where we see the market, obviously the markets are going to be rangebound. Our belief is that whilst a 10-15% slide is possible, we can expect an upside, 20-25% bear market rally.

Q: Is there a handle right now though on how much earnings deceleration we might see over the next four-six quarters and what spaces are you the most worried about?

A: I think we will have to take it step-by-step. We will have to look at how the earnings pan out for the December quarter. There are possibilities of negative earnings.

Our consensus estimate would be in the band of 11.5%, and it may just slip into a high single-digit as well on FY09 basis.

Q: Any specific expectations from the monetary policy?

A: If you look at where we are as an economy, clearly the positives today far outweigh some of the negatives that we have. If we have to outline what the challenges are, we have challenges on the balance of payment side; we have challenges on external funding requirement for capex, capacity expansion in an environment of slowing demand, challenges around inventory losses because of steep fall in prices giving little chance for companies to de-stock.

But if you look at the positives, our dependence on export is low. Therefore we are less open as an economy, and therefore less vulnerable to external slowdown. With the kind of fall that we have seen in inflation and commodity prices, I think it gives enough room for us to be flexible around monetary measures.

We have seen strong agricultural growth. We still have a healthy Forex reserve. We have seen a fair amount of FDI inflows. And to top it all, the kind of proactive measures which the government, the policymakers and the market regulators have been making, have been unprecedented in terms of trying to find a solution for problems which have been imposed upon us.

Disclosures:

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