SENSEX COULD DIP TO 30,000, SAYS MARC FABER

After a strong start to 2018, the markets have been on a roller-coaster ride over the past few weeks. MARC FABER, editor and publisher of The Gloom, Boom & Doom Report, in conversation with PuneetWadhwa says he is not in a rush to invest right now as he expects the markets to drift lower. He, however, remains bullish on Indian equities from a long-term perspective. Edited excerpts:

What is your market outlook for the next one year?

For global equity markets, 2017 was a fabulous year. In dollar terms, Indian markets were up around 35 per cent, Vietnam was up over 50 per cent and European markets gained around 25–30 per cent. Most Asian markets, too, gained in that range. In early January, the US markets went ballistic and saw a secular rise. In the US, we have not had a correction of over 5 per cent for the longest period ever. It was in February 2016, when we made a low of 1,810 on the S&P. Since then, the index has not corrected even 10 per cent. The market was overbought and the overall sentiment was optimistic despite high valuations.

Even in India, everyone was piling on to the markets to get a quick return. The correction started after January 26, with the S&P hitting 2,872 levels. We have seen a rebound in the last few days in the US, but I do not see it lasting for long. On the contrary, I expect the markets to drift lower. It is difficult to predict right now whether it will dip 10 per cent or 20 per cent. That said, for now, we should assume that we have seen the new high.

How do you think the Indian markets will play out?

The Indian markets, too, have been extremely strong in the last two years with the S&P BSE Sensex hitting a high of 36,443 on January 29. That was partly due to the rupee as well, which remained strong. Though we have corrected around 10 per cent from the highs,

the recovery has not been sharp. The likely direction for Indian equities is lower. We also have the state-owned Punjab National Bank (PNB) fraud, which will keep the market sentiment in check.

How much lower can we go from here?

The Sensex was around the 23,000 mark two years ago and has rallied sharply from there. The next support for the market, in my view, is around the 30,000 level. If that breaks, we can easily drop to around 27,000 to 28,000 levels. It is imperative that the index does not break the 30,000 mark. The minimum downside expectation from the current levels on the Sensex is 30,000.

In the last few days, the rupee has been weakening. If this continues, it would be an incentive for foreigners to exit. That said, I am bullish on Indian equities from a long-term perspective. There has been meaningful progress in policy measures in India over the last few years.

Has the PNB scam shaken your confidence in the country’s banking and financial system?

There are two ingredients for a correction. One is heavy public participation, which we have had now. Heavy participation can make markets top out. The other is any major probe/scam/fraud. And, it is usually not just one fraud. Once a fraud breaks out, there are a series of fraud/scams that follow. In the case of the PNB fraud, it does not impact the economy, but it does impact confidence in the country’s financial system. Whenever fraud happens, be it Enron or PNB, it is not viewed as a good development for financial markets. Usually, there are more that come to the surface.

What is your view on the long-term capital gains tax?

I am bullish on Indian equities from a longterm perspective. That said, it is not easy for the Narendra Modi-led government to implement all reforms in one shot. Over a period of time, a lot of things have improved. However, I am against any kind of tax, be it LTCG, shortterm capital gains tax (STCG), excise duty, or value-added tax (VAT).

What is your message to investors, given the road ahead for equity and financial markets?

We do not know what the world will look like in five years. There can be some big geopolitical issues or there can be some more economic expansion. In June, we will have the longest streak of global economic expansion in the US that is being financed by debt. I would not play a hero here and put all my money in equities/stocks. It is advisable to diversify. Personally, I am not in a hurry to invest right now.

When I look at India, I still think there is a huge opportunity in real estate — not necessarily in the metros such as Mumbai, but outside main cities. The government eventually will have to build new cities and infrastructure. With the focus on affordable housing, there is a big opportunity for investors here.

There are ample opportunities for companies to benefit from an increase in rural income. In the next few years, though the overall stock market may not perform well at the macro level, it will definitely become a stock-pickers’ market. There will be companies that will do well, and those that will not. One will need to take an investment call accordingly.

IN THE NEXT FEW YEARS, THOUGH THE OVERALL STOCK MARKET MAY NOT PERFORM WELL AT THE MACRO LEVEL, IT WILL DEFINITELY BECOME A STOCK-PICKERS’ MARKET. THERE WILL BE COMPANIES THAT WILL DO WELL, AND THOSE THAT WILL NOT. ONE WILL NEED TO TAKE AN INVESTMENT CALL ACCORDINGLY”