US stocks tumbled on Monday with major indices falling by their biggest margin in months. The big cue this morning is what happened in the US overnight, and the Asian markets have picked it up this morning as all of them are in the red. Ram Kolluri of Global Investment Management shares his views on what one could expect from the US markets going forward.
He says that the US markets may trade sideways for the next 3-6 months. He does not see any huge sell-off in the near term.
Excerpts from CNBC-TV18's exclusive interview with Ram Kolluri:
How worried should one be about the data which has come in from the US, from Wal-Mart, and how the dollar is slipping? Do you think we could be getting into a weakish kind of phase?
The dollar weakness is really a combination of pretty good strength evolving out of Europe. Europe is showing pretty strong economic growth while the US economic growth is slowing down.
The dollar is going down, there is an inflationary problem in the US. This ties down the Fed's hands in terms of cutting interest rates going forward, and that's what the market is worried about. With inflation rising, the Fed can cut interest rates.
These two things are weighing under the market. Also weighing down the market is the fact that corporate earnings enjoyed double digit growth for 14-15 quarters, and right now the projections for 2007 are a slowing down in the corporate earnings.
We have had a wonderful run in the equity markets in the US. If the corporate earnings are slowing down, and inflation is creeping up, merchants feel that it is better to book profits at this stage. So that's what is going on now.
Does it mean that we are going to have a big sell off?- I don't think so. We need time to digest this run up in the recent times and move forward.
Will the market have to do a lot more adjustment to factor in what might be a harder landing for the US economy than expected?
That's a million dollar question- whether it's a hard landing or soft landing is what the market is pondering on. My sense is that we are not going to see a hard landing. What we will see is a somewhat softer landing.
But if one believes that since in the last 12 months they made 15 per cent and therefore they will make another 15 per cent in the next 12 months, one needs to adjust their expectations. Probably, we need to sort of digest and trade sideways for the next 3-6 months.For more information about trading and markets log on to www.moneycontrol.com
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