Downside risk for Indian rupee remains: Bank Julius Baer

Asian markets are not looking good following the overnight Wall Street cues. Speaking to CNBC-TV18 V Anantha Nageswaran, Head of Investment Research at Bank Julius Baer believes the Indian Government’s decision to hike energy prices satisfies nobody, so the downside risk for Indian rupee and Indian equities still remains.

Excerpts from CNBC-TV18's exclusive interview with V Anantha Nageswaran:

Q: A quick reaction on your rating on India now after yesterday’s fuel price hike and the way politically things are now shaping up in the country?

A: I’m afraid that the decision of the Government to hike the energy prices yesterday is not necessarily going to make us change our stay off in Indian equities and Indian rupee stance for the time being. We feel the decision really satisfies nobody, so in that sense the downside risk for the India rupee and Indian equities still remain with us.

Q: Inflation is the new bug bear for most of the Asian markets to track downward cues now?

A: Indeed I think the fact that they have delayed their reaction to global oil price until now; probably makes their measures a case of too little, too late and also with Mr Bernanke focusing on inflation, I don’t know whether he is serious about this. But to the extent that the markets believe that he is serious then it brings back memories of May-June 2006, when US Fed’s hawkish stance on inflation created a 26-28% fall in the emerging markets indices in 6-7 weeks but that risk is now been brought to the forefront.

Q: So will lesser profile markets in Asia be more in focus rather than the big names?

A: I don’t think. In fact the smaller markets in Asia are getting affected for other reasons as well besides inflation and oil price impact that is political risk. If you look at Malaysia there is a political uncertainty going on after the elections.Also in Thailand there is once again a protest against the ruling coalition and there is still some talk of coup in the air.

I think the Asian smaller markets if anything are buffeted by many winds rather than just oil prices and inflation shocks.