Nick Parsons of the National Australian Bank says that the fall in markets across the euro zone was caused due to investors liquidating positions to reassessing the situation.
Parsons adds that the period of reassessment offers opportunities as the idea of an indefinite paralysis of government in Italy will be challenged over the next few days. It is the trading range of the rupee that has become the focus of overseas investors.
"The global-investor mood on India has turned positive after the rupee stabilised at Rs 54.13 after going down to to Rs 52.95 and rising to a high of Rs 55.38," he told CNBC-TV18.
Below is the edited transcript of the analysis on CNBC-TV18
Q: What do you attribute the sudden sell-off in the global markets and do you expect the trend to continue?
A: Over the last 24 hours, there has been a fairly indiscriminate liquidation of positions across all asset classes- peripheral European bonds, major stock-market indices, emerging market stock-indices and in currencies. To give you an example, on Monday the Euro-Yen exchange rate traded on eight different big figures.
Investors globally have liquidated positions to reassess the situation. That process of reassessment starts now. It does offer some very attractive opportunities because the idea that governance in Italy is going to be in a state of paralysis indefinitely is going to be challenged over the course of the next few days. I can see if anything but a little bit of calm returning to the global markets.
Q: What sort of ramifications do the Italian elections have on the eurozone? Will the risk-off continue for a longer period of time?
A: I think the risk-off is going to be transitory. Markets under-priced the risks of a clean outcome to the Italian elections, but after the panic over the last 24 hours they are probably also under-pricing the risk of the emergence of a coalition.
It is quite possible because nobody in Italy wants to be seen as responsible for bringing about a second general election. However, there could be some form of grand coalition emerging over the course of the next week or ten days. The markets have swung from one extreme from another- from under-pricing risk on Monday to overstating the risk of paralysis in Italy today.
Q: What is the global investors' mood on the Indian market in the backdrop of the presentation of the Union Budget on Thursday?
A: The overseas investors’ outlook on the Indian markets is intricately tied to the fortunes of the currency. The rupee at Rs 54.13 is pretty much in the middle of this year’s trading range after falling down to Rs 52.95 and rising to a high of Rs 55.38. So, as long as the rupee is trading towards the middle of that range, international investors don’t see there is any particular reason to shun India or adopt underweight positions.
Signs of stability in the currency as evidenced by the rupee moving back to the Rs 53 level against the US dollar will be viewed very positively.