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Jul 30, 2012, 03.02 PM IST
Geoffrey Dennis, global emerging market strategist at Citi, tells CNBC-TV18 that they are underweight on India.
One factor that hasn’t gone completely against the market yet has been foreign inflows, which have remained strong. However, according to Geoffrey Dennis, global emerging market strategist at Citi, this may not last for too long.
In an interview to CNBC-TV18, Dennis says that flows into India from foreign institutional investors will slowdown from here on because Idnia’s outperformace due to weak commodity prices is over. “The biggest period of benefit for India from commodity price decline has already happened, so I would expect to see those FII flows probably begin to slow down from here over the next several months,” he said.
He further adds that Indian equities are more expensive than other emerging market equities, and therefore he is underweight India.
From an earnings perspective, however, Dennis says India is likely to outperform its peers. Citi expects India Inc to deliver 12% growth this year and 14% in the next. His top sectoral picks are materials, financials, and consumer discretionary.
Below is an edited transcript of his interview with Udayan Mukherjee.
Q: There has been a lot of excitement in global markets over the last 2-3 days on Mario Draghi’s comments. What is the next course of action you see from the ECB?
A: Well we certainly look for another interest rate cut down to just 50 basis points over the next several weeks. We also think that there is a very good chance that the European Central Bank will formally institute a policy of quantitative easing. So given the definition of QE, that does mean that ultimately we would expect the ECB to step back into the markets to buy some bonds to provide some support.
I think what the ECB is waiting for or has been waiting for is other initiatives to be put in place, other action by European governments, before they step up and take their own additional action. But we find it inconceivable that the ECB will just stand by and let the euro collapse. We do think that there is more action they will take and we should expect that over the next several weeks and months.
Q: This will buy some time, may trigger off some kind of risk on in global markets, but by the end of this year where do you see the situation having evolved to?
A: We think what will happen ultimately is that Greece will almost certainly leave the euro. The official view we have is that 50-75% chance that Greece will leave the euro before the end of next year. The most likely scenario is that Greece will leave probably well before that, possibly around the end of this year is a good time frame.
Then what happens is that firewalls will be in place to provide the necessary protection to ensure that other countries do not leave. We actually happen to believe that the other members of peripheral Europe such as Spain, Portugal, Ireland and Italy are in significantly better shape than Greece is. Therefore Greece we think can leave without necessarily causing the whole of the euro to collapse.
So I think gradually, with the aid of some steps towards banking union, with some aid towards fiscal union as well including potential euro bonds, we will look eventually for the situation to settle down once Greece has left the euro itself.
May 25 2013, 16:36
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May 25 2013, 16:36
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