The market is continuing to worry about the fact that obviously the Federal Reserve is looking to undertake tapering, and so is still going through this period of adjustment which will probably continue for a few months, says Jeff Chowdhry, head of emerging market equities, F&C Investments.
Talking to CNBC-TV18 he says that the quantum of downside is very difficult to forecast but it is quite possible that we can get a 10 percentage dip from current market levels, he says.
Below is his edited transcript of his interview with CNBC-TV18:
Q: First, just coming down to what we have seen on the emerging market (EM) side with regard to a reaction on the United States (US) non-farm payrolls data that came in better than expectations. Was it warranted? The weakness that we saw in the rupee, was it in line with other EMs or was India worse off?
A: Yes, I think the market is continuing to worry about the fact that obviously the Federal Reserve is looking to undertake tapering.
Obviously tapering means tighter liquidity and higher yields, and so the market is still going through this period of adjustment. I suspect that this will probably continue for a few months.
Q: What could the quantum of this downside look like if there is more incremental weakness to adjust to the new policy?
A: I think what Bernanke has signalled a few weeks ago was the fact that the Fed was considering this tapering. Now the numbers have started to come through. It is by no means assured that they will start in September, but there are some commentators who are saying that the tapering will start in September.
In terms of a quantum of downside, it is very difficult to forecast because it is very difficult establish to what extent the market has discounted this. But I suspect it is quite possible that we can get a 10 percentage downside from current levels.
Q: In light of all this, how are investors now looking at India as an asset class considering the depreciation or the rapid depreciation that we have seen on the rupee and the weakness that we are seeing even in the equity markets as oppose to what we were trading at earlier. What is the approach that investors do have towards the fixed income as well as towards the equity market side in India?
A: I think on a short-term basis it is a case of watch and wait. I think the process of adjustment in terms of rising yields clearly haven’t come to its end and also the markets are still worried about US treasury bonds, which obviously are standard bearer for yields everywhere in the world.
Having said that given the extent of rupee depreciation and given the fact that the market has corrected then increasingly it is becoming much more attractive, but I don’t see a wave of money coming into the market in the next month or two.