Saturday, February 21, 2015

Faber : Indian stocks not compelling; crude can jump 15-20%

Watch the interview here >>>>

Below is the transcript of Marc Faber's interview with Reema Tendulkar and Latha Venkatesh on CNBC-TV18

Latha: We are about to hear the first full-fledged Budget from the new Indian Prime Minister, there is a lot of hope, are you long Indian stocks, what will you look forward at all from the Indian government?

Marc Faber : Basically the current government has already implemented numeric reforms and the Budget will just confirm these reforms that have been implemented and I am sure that Narendra Modi would proceed at a much faster pace and implement further reforms if he could. However, in India we have to deal with an incredible bureaucracy and so it is not that easy to implement everything you want.

In the US, Ronald Reagan also wanted to cut down the bureaucracy and he only managed to do that to a very small extent. So it is a tough job but I think the overall economy is okay. In the meantime, the share market has gone up a lot over the last 12 months and the valuations are in most cases no longer terribly compelling. I just looked at Nestle India , it is selling at close to 50 times earnings. So everything has to move in the right direction to justify these valuations.

Latha: So you would wait for a dip to buy, you wouldn’t be a buyer already?

Marc Faber : I told you more than a year ago because I am the chairman of the India capital fund and so I invested in India already over the last two years and the India capital fund, because it was overweight banks, last year was up around 50 percent. So I am not inclined to buy right now although I think that the market could finish the year somewhat higher when it all depends also on foreign investment flows and on foreign economies and ideally as I mentioned before that the global economy is not healing, but it is slowing down largely because of a very meaningful slowdown in China.

Reema: So the India capital fund that you monitor will not be increasing their exposure to India right now?

Marc Faber : That doesn’t depend on the India capital fund, it depends on investors who invest in actively managed funds. What I wanted to say is actively managed funds have a tough time because money is flowing into exchange traded funds (ETFs) that essentially track the index.

Reema: We have got less than two weeks before the Greek bailout comes to an end, that is on February 28, so how do you see the bailout talks evolve from here on?

Marc Faber : I think the Greek problem is real. In my view, it is less an economic issue than a political issue. Basically the US would hate to see Greece becoming or separating from the EU simply because immediately there would be Russian influence in Greece or Chinese influence, so it is a geopolitical issue more than an economic issue.

Economically it is very clear. Greece cannot pay its debt, it is impossible, it is mathematically not possible and so a solution has to be found probably a compromise, probably the Greek politicians will be bribed by some handouts or whatever it is and they will continue to muddle through. The problem is that Greece should never have joined the EU in the first play and when it joined and first problem occurred, which was about four-five years ago, it should have been kicked out right away. Now the problem is not that larger and I would say this is a problem for the global economy. McKinsey recently published a study whereby global debts today are USD 57 trillion larger than in 2007. So all we have done is kicked the can down the road and the problems are still there, excessive debt will make it very difficult for the global economy to again grow in a sustainable way.

Reema: What can be the sustainable growth rate for cooling products in FY16?

Marc Faber : FY16 my estimate is the market should grow at least 15 percent. If the market grows by FY15 in-line with our track record for past 2-3 years time we will grow by 25 percent that is 10 percentage points more than the market we have been posting and this should be possible over us. This growth is going to predominantly come from room air conditioners, as well as deep freezers.

Latha: In this electro-mechanical segment what do you think your margins will be in the current quarter? Will it be an improvement over the 0.8 of Q3 and what about the next quarter you may have visibility at least for next 6 months?

Marc Faber : Always the last quarter is very great quarter for that business so it will be significantly better. The second part is with regard to the orders that are being booked that we have disclosed the site margins are around 12 percent or so the new orders which we have been booking in the past one year. So we are very clear with regards to our strategy. We are not going for market share in segment one we are interested in having healthy cash flow and good margins that strategy is working well. That is why our order intake may be low but if they are all very healthy orders. That is how we will pursue this business for the future.

In the case of cooling products, we have indicated that around 10 percent operating margin is sustainable for the foreseeable future. We have to watch the Union Budget when the excise exemption was; you remember there was a 2 percent concession that was given that was not extended beyond December. We have not increased the prices we will look at February 28th what is going to happen then we will take a call as to what we need to do. That is also connected with preparing for the GST assuming that GST rollout will be there. Given status quo 10 percent operating margin in cooling products should be sustainable. We will review it after the Union Budget.

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

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