We are in a bear market

K R Bharat, managing director, Advent Advisors, said we are in a bear market and not in a consolidating market.

You heard the Finance Minister's briefing... what's your own reading on the macro situation right now? Is growth really a big concern?

Bharat: Yes, it is a concern... we are in the midst of a global recession... the western world has been saying it's going take at least year-and-half to two-and-half years to get out of this... Finance  Minister himself, in his speech, said that it’s going to be a long drawn recession...

I don't think there are any simple solutions at hand including the one he has referred to... life is not that simple.... there is a problem today, and people want to be in cash...the big problem in India is banks are not just lending notwithstanding all that we hear from all kinds of quarters... companies I speak with are finding it more and more difficult to get money committed to them... export houses that are exporting against LCs... LCs are not being discounting because people don’t know which bank is going to exist tomorrow and which is going to go bust...

So, there is a genuine problem we are facing globally, which is severe liquidity shortage that is affecting prices of all asset classes...which is affecting market indices and is also affecting economic growth.

Could monetary easing be a solution if price cuts is not the solution as the Finance Minister was suggesting? Can we look at some more interest rate easing, you think? 

Bharat: I think that was inevitable.... it will happen... there is no point in cutting interest rates if the money does not go to the borrowers.... liquidity is the problem but they are also reluctant to lend money... that is exactly the situation we saw in the US some time back when the Fed came out with its plans... banks are not willing to lend to each other....

In India, today, you have a situation that is not exactly similar but there is a strong reluctance on the part of the banks to take risks.   

Are we, at best, in a consolidating market?

Bharat: No, not at all... I think the other problem is we in India are very reluctant to wake up and smell the coffee.... we are in a bear market, we are not in a consolidating market.... I believe there is nowhere to go... not because there is something fundamentally wrong with our economy but there is something fundamentally wrong with the global economy.... like I keep saying again and again, the most powerful economy is going through a recession, and we are one global village.... whether we like it or not, despite the fact that India is not an export-centric economy, you will face the impact... added to which we have our own share of problems... I don’t think we are going to achieve the kind of growth rate government officials say we will... I think we will be lucky if, over the next two years, we can average in excess of 6-6.5%, which will be excellent compared to the rest of the world... it will be a challenge... you will see contracting margins, companies bottomlines under pressure... so, it’s going to take a lot of time globally as well as in India for consolidation to take place.

What about topline growth? Is earning slowdown a reality for a very long time to come?

Bharat: This is not a market you would be looking to invest… I would say at least for the next six-12 months... I think you should review it every three months... the way I look at it, you simply postpone the decision as I have been doing for the last three quarters...

Hopefully, we will all be wrong... the timing as well as the speed of the turnaround but clearly looking at what’s happening elsewhere in the world, it’s going to take time... it’s not going to happen in a hurry... we did not have any divine right to live in a permanent bull market, and that’s something everybody needs to understand.

Would you rule out the re-test of the October 2007 low - sub-2,200 on the Nifty?

Bharat: At this point of time, we cannot rule out anything... the situation is realy grave - you just have to speak to people outside India. I think we, sitting in India and  peering into the blance sheets, tend to ignore what's going outside in the world.... the situation is pretty grim - job cuts, recession, people not going to the malls and not taking their cars to save gas... these are the things one keeps hearing.... companies going bust.. if that is going around, it is also going to affect you... the liquidity impact has come to India as well. The rupee is close to touching 50/$, it is difficult to get a loan... how do you grow? Even going back to what the Finance Minister had said sometime back that you will have to cut prices and sacrifice the bottom line. Why didn’t you buy the market? On the other hand, if you don’t do it, demand is a problem  and there can be a situation where you can have contraction in volume... the whole cycle is upon us and a global downturn is upon us... there is very little we can do. We can discuss till the cows come home. We can talk of what kind of policy we can have - price cuts and tax cuts ,but there is very little government can do....

Do you think mutual funds and insurance companies can play a larger role? Or are they justified in sitting out and not investing as much as FIIs are pulling out?

Bharat: They need to have liquidity. The amount of money that was available to FIIs in the past four¬five years for the emerging markets, especially India, was far greater than the savings we were generating and investing in equities. India is a large savings market but the large saving is mandated. It goes into government bonds and a host of other things... we as a nation put less money into equities than other markets. So that needs to be debated... when FIIs exit, you don’t have enough domestic saving to absorb that... which is why the bull market was because of the liquidity and the bear market is because of the liquidity outflows...

What is your outlook on the oil and gas sector?

Bharat: I would stay clear of the sector, which has excessive government intervention because  with a stroke of the pen, the spreadsheet you are working on can be rendered meaningless. So, I have never looked at the sector, and also not likely to do in the future... the good news for the economy is that oil prices have come down sharply.

What is the road ahead for commodities?

Bharat: I think, for the time being, the story has played itself out. I think that is part of the cycle... commodity prices have gone through a high and have come down. It might take some time  for demand to revive... if you talk to  the promoters in India and abroad, the feeling you get is that lower prices are here to stay..