An insider's view on emerging markets

I recommend this interview of indian private equity fund manager, Mr. Partha Gandhi, managing director of Vision Investments, published today by The Economic Times. Here are some excerpts from this interview. Mr. Gandhi conforts our long secular view on emerging equities while aknowledging that there could be still a lot of volatility and downside pressure in the next 6 to 12 months.

With the liquidity crunch accelerating, how do you map the emerging market universe in the next 3-6 months?

If there is a slowdown in the US, you are going to see a fallout across every major country in the world. If you go back and look at some of the financial crises that you have had over the past century, there are quite a few. If you start mapping these out, this is one of the worst we have seen in a long, long time. In the emerging market universe, markets like India, Brazil or China are showing signs of decline. Markets are typically going to look to future and based on that, there will be issues. ICICI Bank is a case in point.

They have issued a statement saying they have not been affected in a big way, and I tend to agree. You will find that Indian banks have some exposure, but not tremendous exposure. We are looking at tough times ahead, at least for the next 6 months.

I believe that the entire emerging market sector, whether China or India, is going to start looking better around June next year. By which time, you will see more clarity, more visibility in the market. What I would look for in emerging markets is equities, where one can find quality through strong fundamentals and good cash flow.

(...)

What is your sense of where the Indian market is headed and how do we compare vis-à-vis other emerging markets now?

Indian markets have been hit by the recent global shakeout, but not as badly as others. That’s primarily because we have a strong domestic internal market. We are looking at global pressure, but the internal consumption story is very strong.

If you look at liquidity, we have a relatively well-regulated banking environment. In fact, it is the regulatory environment that has served as a cushion for India. We could have been completely open and in a lot more trouble.

That said, hedge funds have a lot of performance pressure compared to, say, private equity funds which can afford to take a 5-year view. So, short-term performance is a tough call right now.