A Correction Will Bring Sanity To The Markets, Says Mirae Asset's Rahul Chadha

Indian markets, having soared to new highs this year, could certainly use some drawdown, according to Rahul Chadha.

The chief investment officer of Mirae Asset Global Investments Co. told BloombergQuint's Niraj Shah in an interview that the markets haven't looked back in the last 12 months. "Some pullback in a bull market is fairly healthy."

"Retail margins are at a record high, not only in India but across the world. The fear of higher commodity prices, supply shortages, stagnation will also lead to a healthy pullback," he said, adding investors would "buy the dips". "Why I say this is because six months from now, a significant part of supply shortages will be behind us."

India's Nifty 50 surpassed the 18,000-mark for the first time on Oct. 11, having climbed 27% so far this year as domestic and foreign investors piled in. The S&P BSE Sensex breached 60,000 on Sept. 24.

Chadha said across the world, there has been a net positive wealth effect between December 2019 to now, to the extent of 15-20%. "Consumers haven't got a chance to spend much. As we see things normalise by March next year, we'll see demand being maintained at a reasonable level. So it shouldn't be a bearish market."

Yet, he said, a correction is needed as there's "too much exuberance". "People think it is almost too easy to come every morning and make some money. It (a correction) gets some sanity back in the market."

The energy shortage, however, may not be the reason for a sustained decline as it will resolve itself soon when supply emerges again, he said. "China has realised the gravity of the energy crisis, so it has eased some of its environmental norms and coal production will ramp up, though the next three months might be difficult," he said. "From the market's perspective, this will be a near-term dampener, but the overall economic recovery story remains intact."

Everybody he has spoken to, including clients, wants the markets to correct, he said. "Time has taught us that in a bull market, corrections are very shallow. So you need a significant negative for a correction to play out. From the foreign investors' perspective, what matters is U.S. dollar returns," Chadha said. "So if the currency weakens, in a way, it's a correction."

"Markets across Asia, including China, Korea and Taiwan, have witnessed some level of correction, so a pullback will happen in India, also due to the high commodity prices," Chadha said. "As the dust settles in three to four months from now, people will see how much of this is transitory and how much will remain."

Watch the complete interaction here: