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Thursday, February 18, 2010

Growth potential in India higher than China: Marc Faber

Famous contrarian investor Marc Faber talks to Jitendra Gupta on the recent market correction and the road ahead for the Indian markets, global economic recovery and whether or not there is a bubble in China.

Indian markets have already corrected by over 8 per cent since its recent highs. What do you expect now?

Even if the global equity markets including India continue to rebound over the next couple of weeks, I do not think we will be making new highs. It's quite possible that for the current year we have already seen the high made recently. I would be cautious about buying equity including in India. The upside is limited from these levels; the Sensex may make marginal new highs at around 18,000-19,000, but the risk has increased and the days of big moves are over. I think markets will correct.

What are the chances of a double dip kind of a global economic recovery?

Yes, I think the economic recovery seems of that kind due to the unprecedented increase in the fiscal and monetary stimulus. Obviously, the main problem that caused the crisis was debt overhang. Debt has moved from the private sector to the government sector, but it has not been eliminated. And the process of deleveraging will take a long time. I think with the (slow) economic growth that we have had in countries like China and some recovery also in the US and elsewhere recently, we will have a kind of renewed weakness in the year 2011 and 2012.

What are your thoughts on withdrawal of global stimulus packages announced by the central governments? Could it be easy going or there would be more concerns? Will governments be able to handle them carefully?

I do not think they can really get out of the stimulus packages at this point in time. I would expect more stimulus packages announced in the US. I think the US Federal Reserve's exit strategy will be to print even more money and impair its balance sheet further.

Estimates suggest that a large part of the $3.4 trillion toxic assets is yet to be written down. Could it mean renewed concern for the markets?

Of course, this is the risk. The banks are subsidised and they can now borrow money for free, considering that the interest rates are almost zero. This should also mean that over time banks should be able to regain some their financial health, but as I said it will take time.

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