Global market analysts believe that it is the best time for Indian markets to progress now as the Fed may be dovish in its stance and pre-election phase in India may lead to more reforms. Christopher Palmer of Henderson Global Investors says that it will be dependent on investor flows and the markets should stabilise from here.
Meanwhile, global markets will be relieved with Larry Summers’ decision to withdraw candidature from the Fed. He has been viewed with having a hawkish stance on rates, he told CNBC-TV18.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Months of anxiety will come to an end on Wednesday when we get to know which way global liquidity is heading. What is the sense you are getting about how much is already been factored in equity markets? What figure would provide a relief rally?
A: I am not sure about exactly which figure the market wants. The Fed continues to stay pretty much focused on its message that its data dependent. So, the jobs figure will continue to really weigh the most heavily on any information we are going to get from the Fed in the near future.
What the markets are happiest about today is that Larry Summers has withdrawn his candidacy for the Fed. Summers had been somewhat critical of Fed policy in the last few years and had been viewed as being much more hawkish on rates.
The bond market internationally is taking that very well as also the immediate prospect of no military action in Syria. So, we have to come in on Monday simply to a better bond market and less geopolitical risks.
Q: Market voices suggest that the taper will start of at USD 10 billion per month. If that happens, in-line with what the street is expecting, then what will be the kind of market reaction? Is there still some upside in the markets if it comes in line?
A: There is upside to the markets. The Fed's positioning about taper and about the timing of taper clearly has proven to be market sensitive and they have adjusted their message depending on where they see the markets reaction.
The only surprising element to all of this could be if the Fed perceives that perhaps the housing market has run ahead of the stock market and that might itself call for some adjustment to the message around taper or the timing of taper, but I would consider that to be an outlier.
Q: What is your view on markets like India as we have recovered more than 15 percent from our lows? Do you see a bigger recovery in stored for emerging markets like India?
A: In India's case, it will be dependent to certain degree on flows and what is happening elsewhere in emerging markets (EMs). The story there should be one more of the markets stabilizing rather than there being a tremendous amount of inflows.
Investors have not quite made up their mind about whether emerging markets are safe place to be on the withdrawal of liquidity. I would still stand balanced there. They are more negative on those prospects.
India is entering the pre-election phase where new faces are being introduced to investors and the prospects for reforms which foreign investors feel quite strongly about look more realistic.
So, for India from hereon, I would say that it is the best chance for the markets to progress. The reform message is quite strong and the taper message from the Fed is inline or slightly more dovish.