Correction could be bit deeper in India: JF AMC cont.....

Q: What feelers are you getting from the sub-prime mortgage market? What is your own sense? Will there be a much larger spillover or do you think we have seen the scariest bit already?

A: I think everyone has agreed that it is not likely to lead to systemic crisis; now if you say that sub-prime loans count for say roughly 10% of the total mortgage loan book and maybe one third of those go for closure, not all of them are going to be in dire straits, then it would be an add-on to delinquency mortgage or maybe getting up to a delinquency ratio of 5-6%, then that is a lot way above normal but it is not enough to cause tremendous damage to the whole US financial system and it is not really going to be on par with the savings on loan crisis but it will take a while to work off.

Q: There are several parallels drawn with the situation you had in May. Are we somewhere there and do you think it will be the same period in terms of time by when the market starts pulling back or showing more recovery?

A: Every correction is different, and we have had corrections in the Spring, now in the last three to four years, which have typically been around 15% for other global emerging markets and around 8-9% for the developed markets.

I don’t think one should read too much into that, it is not a seasonal thing and each correction can be different. All we would say is that most retail investors are better off trying not to time these things, but stay invested for the long term and allow the dollar cost averaging to actually buy units now through the correction, which will be cheaper than when markets are most expensive and have recovered.

Q: What is the sense you are getting on India from out there from a lot of the funds and investors?

A: The sense we are getting is that nobody is worried about the long-term India story - that it is going to be one of the most exciting places to be in terms of equity investments for the next 10 years. People are a bit worried about inflation. They recognise that the RBI has moved - whether it is ahead of the curve or slightly behind is another issue. So nobody is thinking of reducing or pulling out or saying this has been a bad idea. There is a tremendous amount of confidence in the India story, but in terms of timing that the people expect, given how rapidly the market moved up last year and the correction could prove to be a little bit deeper.