The optimism seen in the rupee is testimony of the foreign institutional investors (FIIs) judging the RBI’s measures positively, says Nicholas Ferres, investment director, Eastspring Investments.
Speaking to CNBC-TV18, Ferres says that his main concern right now, however, is the structural follow-up on this positivity.
“My only concern from a bigger picture perspective is that now this is a magic bullet and the government on fiscal side still means structural and fiscal reforms, which is critical as well. So, all the heavy lifting shouldn’t be just done by the central bank,” he adds.
Additionally, Ferres expects the Indian equity market to see a relief rally in the short-term as the market is not cheap in the global context.
Below is the edited transcript of Ferres' interview to CNBC-TV18.
Q: Can you tell us about the rupee and what foreign institutional investors (FIIs) are now viewing the measures undertaken last night as?
A: I think the measures that have been taken are fairly positive judging by price action in the rupee. My only concern from a bigger picture perspective is that now this is a magic bullet and the government on fiscal side still means structural and fiscal reforms, which is critical as well. So, all the heavy lifting shouldn’t be just done by the central bank.
Q: What is your call on Indian market, do you think a corner has been turned or would you be wary of calling that?
A: There maybe a relief rally in the short run, but I do not think this is a magic bullet to solve India’s problems and my key concern with India as a stock market is still not particularly cheap in global context. So, given the deterioration in profitability and macro fundamentals and the weakness that we have seen in the currency already, it is possible that the equity market needs to derate further. But in the short run, this could be a bit of a relief rally.
Q: In light of maybe a better non-farm payroll’s data that does come out, how would you position yourself on the Indian currency post Friday as well as going into the Federal Open Market Committee (FOMC) policy?
A: The payroll on Friday is very important. The macro news flow generally in the US has been a little bit mixed on the housing front recently but the Institute for Supply Management (ISM) survey or the manufacturing survey that came out the other night was strong and does suggest that growth in the US economy is picking up. If it is infact in conjunction with strong employment data then it would probably lead to much higher bond yields in the short-term and that may put additional pressure on currencies against the US dollar.
Q: If in case there is a definitive timeline about tapering that comes out on September 17 and 18 do you think that the Indian market as well as the currency could see the same rout or do you think that we could have possibly isolate ourselves because we have had better Parliament sessions this time along with the fact that the new Governor has stepped in and hence a sentiment is much more on the upside?
A: If we get payroll’s numbers reasonably benign, pretty consistent with what we have seen over the last few months, then that maybe reasonably supportive because of concerns what the market is already priced. However, if we get payroll’s number, for example, that implies a much larger withdrawal by the Fed and even with Fed contemplating, potentially even raising the Fed funds rate sooner than the market expected or atleast the market pricing that, then that is much more of a fright in the short run but if we get something around consensus side, I think it could be positive for India on the short run.