David G Fernandez of JP Morgan feels it will be difficult for most economies to sustain growth with oil prices rocketing.

The emerging markets are more vulnerable to higher commodity prices, and the problem of Inflation is higher in Asia and central banks will have to tighten policies, he adds.

He said that the environment is not very bullish until there is clarity in growth.

Food inflation has to calm down before equity markets can perform, Fernandez said. He added that the inflation numbers from China next week will be critical.

Excerpts from CNBC-TV18's exclusive interview with David Fernandez

Q: Your thoughts on the crude market and how equity markets are reacting to that?

A: I think the movements in crude are quite disturbing given that even if you think about the overall global growth picture which on a fundamental basis should have an impact on how crude prices are moving. We have gone through these phases now feeling exceedingly bearish about global growth as we were in the first part of the year and now we feeling little bit better about things. Maybe the US is not as bad as people had expected. But through all of these ups and downs and the feelings on growth, oil discontinues to march higher and in that environment it's going to be difficult for markets to take a positive direction.

Q: To touch upon the point you mentioned after the last quarter GDP number of 0.6%, some have even gone to the extent of saying that maybe there is no recession in the US at all. Is that likely or possible in your eyes?

A: In a sense we may get through this without a contraction in GDP, but that doesn’t mean we don’t have continual bleeding in terms of jobs in the US. The job numbers last month weren't that bad, but was still negative in our JP Morgan forecast. We are going to continue to print negative numbers for the next couple of quarters in terms of job growth. So it may not technically in the sense of putting negative GDP be a recession, but it certainly feel like a very weak economy with jobs contracting in the US.

I think in this sort of mix area where you can proclaim it to be a recession, you can say that it's not going to go back and forth for the next several months with this feeling. We are not sure whether global growth is there and is it supporting the markets and that’s a sort of uncertainty we will be facing for the next several months.

Q: How big a problem would inflation continue to be for emerging markets, including ours, for the rest of this year and to that extent what are your interest rate expectations from this part of the world?   

A: I think this is the big issue. You like growth to be a key driver for markets and the expectations on growth largely have driven the way the markets have moved in Asia. At the beginning of the year people continued to worry about growth and we saw no decoupling in the sense of our markets continuing to move down and now past couple of weeks people are feeling slightly better about things.

Why they are feeling better, probably because the Fed is able to act so aggressively and creatively in terms of trying to create a bottom under the US economy flooding the place with liquidity and lowering interest rates. But in Asia we haven’t had that luxury because while we get pulled along in terms of the growth rollercoaster, we are much more sensitive here in emerging markets and in Asia particularly to these high commodity prices pushing inflation higher and not giving our Central Banks the opportunity to take out the kind of growth insurance that the Fed has done.

So I think we are uncertain about global growth, but we are certain that inflation is headed higher and in that sense Central Banks around the region are going to act in terms of trying to cut off rises in inflation expectations. That’s a pretty bearish scenario I think. We are uncertain about growth, we are pretty certain that Central Banks might tighten.

Q: Where does all this leave the equity market performance in the near-term? We all had a meaningful bounce since January but there is one part of the market that’s been calling this move, the S&P suckers rally? Would you agree?

A: I feel in this macro context, you just don’t feel that much conviction on growth and you feel as though the Central Banks have to do something in terms of warding off rises in inflation expectations. It doesn’t sound to me like a particularly bullish environment for equities until that inflation picture or the growth picture clears up.

The feel is a true bottom is formed in US growth and I think we could start to feel that but not really until the middle or pass the middle of the year. In terms of inflation I think that everyone’s call when inflation peaks out in countries in Asia continues to be road forward because bear in mind we are focusing on oil in this discussion and it's mostly been food.

Food in the first three months of the year experience more than 60% of the rise in inflation in Asia. So what is your call on food? Do you think that food prices are finally going to roll down? I think most people would say, yes but we still haven’t seen that actually happen. I think that’s the thing we have to calm down before equity markets to get perform.        

Q: How are you feeling generally when you speak to colleagues and associates about the mood towards India and China in specific given the whole context of inflation and food inflation?

A: It is the concern over need for tightening that I think is one of the biggest things holding clients back in both China and India. But China in particular, are rumours again yesterday about some sort of tightening that the People’s Bank of China (PBC) would have to put in place, we get an inflation print next week from China which will be a critical one and certainly in India now that we have had the second move in terms of CRR, I think people are still concerned that there might be further tightening after that.

It really is inflation concerns. What can the government do that they can keep inflation expectations down in both places that will in some ways save the monetary authority the PBC, RBI from having to do the work? That’s the question people are asking because if they aren’t able to do that and if we have to do that monetary tightening then there will be negative in both markets.

Q: Your thoughts on what’s going on in India on two fronts (1) the rupee if it appreciated would have helped inflation a bit maybe, but it’s actually depreciating quite fast these last few days. (2) In our recent monetary policy the RBI Governor stopped short of tightening rates, just chose to deal it from the liquidity front. How do you see these two parts of the puzzle moving forward in India?

A: On the second point I think it was definitely an appropriate measure. It isn’t a question of raising rates at this stage in terms of attacking the inflation issue which is a supply side driven phenomenon; it’s more about liquidity management and in that sense I certainly think it’s correct.

However when it comes to the use of the exchange rate, I think it actually would be an incorrect move if there were to be an engineered appreciation of the exchange rate to try to fend off inflationary pressures. Especially given the context of last year’s significant move in rupee, I don’t think that people should think about this as a way to manage inflation; it should just be a reflection of the Balance of Payment (BOP) flows themselves.

Rupee has been an underperformer as you note. This is a situation now where the dollar is bouncing back generally around the region. I think we will still see rupee trade towards the strong reside as we get towards the middle end of the year. But I don’t see this particular weakness in currency is anomalous. It's really happening across the region right now; it’s the dollar bouncing back.