There is still good money to be made in emerging markets: Emil Wolter, RBS

In an interview with ET Now, Emil Wolter, Head, Asia Regional Equity Strategy, RBS, talks about emerging markets, Indian economy and expected GDP growth.

ET Now: What do you make of the recent underperformance, which emerging markets have reported and you think the underperformance is here to stay?

Emil Wolter: To be honest, it would depend on the market going forward. There are perhaps certain factors that one could point towards representing some more sustained risk of underperformance but actually my feeling is that the outlook for Asia ex-Japan in general is reasonably constructive for the next 12 months.

ET Now: In particular what about India because the markets have headed for a big correction in the last two months? Do you think there is further downside? What are the fundamentals indicating for India in particular?

Emil Wolter: We have been cautious on India for quite some time as you are possibly aware. I still fail to get very excited about the prospect for the markets.

We are continuously looking at a trajectory of slower growth. This trajectory basically has not yet been reflected in either analyst expectations or indeed valuations for the market overall.

Whether or not, we will see a dramatic decline from here; I probably would not bet aggressively on that but sustained underperformance might well be on the cards due to a combination of effectively pressure on the external accounts, a sustained high inflation and therefore a need for higher interest rates and ultimately the result, which would be a slower growth in the economy.

ET Now: What are the chances that towards the second half, Indian markets could bounce back as the inflation/commodity effect could actually support a market like India?

Emil Wolter: Those chances are always there and indeed my preferred outcome is that the valuations compressed by another 20-25% might not take place.

Indeed one of the upside surprises if you like or one of the potential positive tailwind that India could enjoy would be a dramatic decline in the oil price for example, that would also be good news for the global economy in aggregate.

I suspect that might not happen, so yes if commodity prices were to come off dramatically, if somehow commodities and the supply of basic foodstuff would go from being in a tight supply and demand balance to being in abundant supply, all of that stuff could potentially happen and, therefore, could prove a boon to the Indian market.

In the meantime, it looks like the economy is set to continuously slowdown. We are still not seeing a great many deal of the earning surprises on the corporate side and valuations do not look that attractive.

ET Now: There have been fresh round of cuts when it comes to India's estimated GDP figure for this fiscal and the next, what is your prognosis and target for GDP growth at RBS?

Emil Wolter: I am not an economist, so I can tell you the official RBS estimates for 2011 and 2012 around 7.8%. I suspect that this puts us pretty much in the middle of the pack with the rest of the street. Our personal view is that we could slow quite a bit more. India is going into a period of time where it will probably grow somewhere between 6.5-7.5% and that's not the end of the world by any stretch of the imagination but it obviously is still somewhere below what is I guess effectively expressed in the current earnings estimates for the stock market.

Source : http://economictimes.indiatimes.com/opinion/interviews/there-is-still-good-money-to-be-made-in-emerging-markets-emil-wolter-rbs/articleshow/8647130.cms

Thanks and Regards,

Abhishek Padukone

Summer Intern @ DENIP Consultants Pvt. Ltd.