Speaking to CNBC-TV18 Richard Harris, Chief Executive of Port Shelter Investment Management said that the US Fed has gone so far in not raising rates.
Even as interest rate differentials between India and US are narrowing, he believes that a lot of it is psychological. It depends on trades, he said, adding that in response to a Fed rate hike the Indian rupee would weaken. But currencies don’t move in the same way. “Everyone will be interested in how the economy will recover.”
Bulls will continue to run through on back of a lot of strong underlying fundamentals.
He is positive on India, and believes that removing old banknotes could well push India towards a digital world in the long-term.
Following FII outflows, the next move for investors will be able to buy than sell which will be generated by more confidence in Western markets.
Below is the verbatim transcript of Richard Harris's interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Anuj: What is your sense do you think that data today would validate a December rate hike? Is that something that the market has to now live with?
A: I think that they painted themselves rather into a corner and they are not going to be able to do anything else about it. So, the Fed has gone so far in not raising rates, it is going to be extremely difficult now for them to go back from it.
Latha: I want to ask you about the long DM short EM trade but before that I don't know how closely you look at India there is a widespread expectation on December 7th that we will get a rate cut and as you said there is an expectation that there is a rate hike from the Fed on mid December now how does that place the rupee? The interest rate differentials are narrowing, until now the currency has performed with a brilliant resilience, will that be under attack?
A: A lot of this is really psychological. It just depends how trader is trading on the day. clearly, the kneejerk reaction will be to do very much as you are saying, is the how rupee weaken.
However, these movements are not being shown off in practise. We are saying rates move all over the place, we are not seeing currencies moving quite the same way. Maybe traders have just decided that this isn't the one that they would follow. They are much interested in how the economies are likely to recover. So, so far that seems to be the situation.
Sonia: What are you advising investors to do now? Is it time to raise cash levels because there could be some amount of risk aversion or is it time to be deploying money and if yes in to which market are you most interested in now?
A: I think that might be the case, but I think the bull market is going to continue to run through partly, because we had a lot of hold back prior to the election. We also had quite a lot of economic factors sort of moved on, China looks better, the US looks okay and there may be Trump rally with more spending etc. So, the underlying fundamentals look okay and that is likely to lead to the market still staying fairly firm globally.
Latha: How does India stack up among the emerging markets? There is a broad short EM trade but how do we stack up will commodity guys be ahead of us?
A: I have generally felt that India has been looking okay of course we have had bit of headlines in the last couple of weeks with the pullback or the removal of the notes in the market. They are not looking further on, it is captivating to think then India might move to a much more digital way of payments, so all of that is interesting.
However, my internal feeling has been that if we see a continuation of the markets move on for a period of time may be a month, two month then we will see rotation into the emerging markets.
Anuj: What about the foreign investments the portfolio investments? Do you get a sense that in the emerging market we have reached near the capitulation state or the foreign investment outflows?
A: I think that is probably true. I think the next move is to buy rather than to sell and that will be generated by more confidence in western markets and then people starting to say well may be western markets have moved on far enough where we can find some value in some of the other markets.
India is always something on people's minds, of course India should have benefited from an oil dividend when the oil prices were low. India should have benefited from China's economy weakening quite substantially. However, too often investors look at emerging markets as one block, so this is likely to be less deferential. However, I think as people look to both emerging markets if this bull market continues then India will do well as well.