Expectations from equity set to moderate

US slowdown will not lead to full-blown recession, feel global investors

MUMBAI: Ever since the global meltdown due to the sub-prime crisis in the US began, we’ve heard it over and over again that a US slowdown may not necessarily impact India.

Hear that again, and some more.

Jyotivardhan Jaipuria, managing director of research, DSP Merrill Lynch, has just heard views from around 450 global institutional investors in New York.

Speaking to DNA Money from the Big Apple, he said, “People are definitely worried about US growth and I get the feeling that it’s going to be slow over the next couple of years. But that said, no one’s expecting a full-blown recession.”

That means the equity environment is still good and global fund managers will look at parking money in markets not too vulnerable to a US slowdown. “Everyone still believes in the India story and recognises India as one of the markets to be least affected by a US slowdown,” he said.

His opinion matters, as it reflects views from some of the largest Wall Street investors: chief investment officers, portfolio managers, analysts and traders from US hedge funds and money management firms, senior representatives of US corporations and public pension funds, endowments and foundations as well as executives from major MNCs with extensive business interests in India, who attended the two-day India Investor Conference organised by Merrill Lynch and Infrastructure Development Finance Company (IDFC), which concluded on Friday.          

“These people are not trying to figure out the daily movements in the market. Rather, they are looking at India over the next 3-5 years,” said Jaipuria.

What about hedge funds then? “It’s a misconception that hedge funds are here only for the short term. Every market has a secular trend and an intermediate trend, and even a hedge fund cannot afford to ignore the secular trend,” says Jaipuria.

So, while they may give rise to wild swings in the market, by pulling out money opportunistically, they could also hugely prop up the markets when their call goes in the other direction.

Jaipuria concludes that the impact from the US housing trouble would be felt all over, in that there will be less availability of easy funding.

But now, more than ever, return expectations from equity would also moderate.

“Rather than say that I want a 100% return, investors will try to generate incremental returns above the market,” said Jaipuria. “Their outlook would be, ‘by how much can I beat the market’?” he explains.

Infrastructure and power were the pet themes of the conference, what with GMR Infrastructure, IDFC, NTPC, Power Grid Corporation, Power Finance Corporation and Cairn India dominating the list of companies that presented their respective cases to the US investors.

“From their presentations, I got the feeling that they expect interest rates in India to remain more or less flattish,” said Jaipuria.

So, that makes the case stronger for Indian companies and their earnings.