Jeff Chowdhry, head of emerging market equities, F&C Investments believes the Indian rupee can go below 60 against the dollar if the measures announced by the new Reserve Bank of India (RBI) Governor are well implemented.
Also Read: Nifty target at 6000; short-term traders stay out: Sukhani
In an interview to CNBC-TV18 he says the market may see a bounce of nearly 15 percent on a short-term basis. However, he adds, unless it is followed up with some real measures by the government or the RBI, the market is likely to head back down again.
Below is the verbatim transcript of Jeff Chowdhry's interview on CNBC-TV18
Q: Have the geopolitical scenario eased now, are investors more confidently taking positions?
A: The Russian proposal overnight has somewhat eased tension. The American's are slightly skeptical of it because it could be a case of one step forward and two step backward. So, from where we were 24-48 hours ago, clearly the geopolitical situation seems to be better than it was earlier.
Q: Do you think the worst is past and it might stabilise somewhere between 60 against the dollar and 65/USD?
A: Yes. The new Reserve Bank Governor has made all the right choices. It has been well received both domestically and internationally.
Always, the issue with India is that words are easy, implementation is difficult. So, if this is followed up with implementation then the rupee could go below 60/USD. If its not, it stays at this level.
Q: How much do you think tapering will come on September 18, September 19? What might that mean to the Indian stock market?
A: The US economy is not as strong as people think. If you look at the data of the last few weeks, it proves to be the case that the US economy is strong in part but is not overwhelmingly strong.
It gives Federal Reserve a bit of a dilemma because they have highlighted tapering but they may not taper as much as the market is expecting.
You got this new term in the markets called "Tapering Lite". It means a bit of tapering but not much. So, that led partly to the rally in the markets in the last few days and also because of the fact that they won't be as aggressive as they indicated back in May.
Q: Do you think we have put a bottom for the Nifty at 5200? Can Indian fundamentals anyway drag it lower?
A: The Indian market together with some of the other markets like Brazil and Indonesia have been weak for two reasons – one, the tapering issue and if tapering will slowdown or bond yields are not going to rise as much then clearly that is good for all other markets because of their issues with current account.
However, with India the other issue is that unless it is followed up with some real measures as the RBI has indicated and if it is followed up by some measures on the political front then the markets can rally quite sharply. But it is a couple of if's and but's before we can say the market is going up.
Q: In fresh portfolio allocation where would India stand within the basket of emerging markets?
A: Given that fact that the rupee has fallen so strongly and the market has fallen so far it is definitely appearing to be oversold but the problem with that is you can have a bounce of 5-10 percent, even 15 percent on a short-term basis but unless it is followed up with some real measures you could go back down again.
We are enjoying a very strong rally. Banking sector looked to be oversold about a week ago and bounced very strongly. So, it can continue for a little while but at some point people will demand measures.
Q: Market was speaking very strongly about a possible hike in diesel prices in India. Nothing came over the weekend. If that didn't come or if it came in at may be Rs 2-3 which the market may consider moderate, do you think we will loose out a bit on the markets current rally?
A: Diesel prices and curb on gold demand are the two most important measures that this government should think about.
If there is a hike in diesel prices it will be good but the magnitude and the quantum of that diesel price hike is very important because it has some expectations built into the markets now.