Don't see a sustained rally in Indian market: NAB

The Indian market has been volatile over the last couple of days. In an interview to CNBC-TV18, Nick Parsons of National Australia Bank says, he doesn’t see potential for a sustained rally in the Indian stock market. "I don’t see the potential for a sustained rally in the Indian stock market, unless and until we start to see foreign investors moving into the rupee," he asserts.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: Today, CAC, DAX, FTSE recovering from yesterdays losses. We have an important Spanish auction, also a French auction. What’s the market thinking at this point? Do you think they will go on smoothly? Should not be a big hurdle for the markets?

A: The Spanish auction is totally going to go relatively well. The reason for that though is somewhat obscure and a little bit technical, allow me to explain. The last time the Spain auction the 10-year government bond, it auctioned four billion in total. The total amount that was demanded that investors were prepared to buy was 2.17 times the amount that was on offer. So, in other words, they put in bids for a little over eight billion of securities, so, 2.1 times covered.

Today, they are only looking to auction around 1.5-2.5 billion. So, it all to be possible in 20 minutes time to generate some positive headlines around the auction because even if investors only want to buy five billion or 5.5 billion, it will still be a bid-to-cover ratio then we had last time.

Q: Is that the reason why the euro perhaps is not reacting? The Spanish equity market was down 4% yesterday. Equity markets across the board have been reacting on news flow from Spain, but the euro-dollar is very firm, 1.31 being held. Although it slipped, but the slippage didn’t last? Do you think that’s the reason why the currency market is not too worried?

A: It is the reason. Yes, you are absolutely right. In fact if you look over the last ten trading days, the euro has been in a range. It very briefly dips below 1.30. The low that we saw was 1.2995. It similarly only very briefly popped above 1.32 and the high last week was 1.3213. So, it is in a narrow sideways range.

I think that is probably the way that we are going to be until the markets start focus on the second round of the French election. But for the moment, the Euro is able to hold its ground atleast. Trading volumes are not big.

We are going to move in a sideways range there over the course of the next week. But probably on the day, the bias is to the upside. Today, we are going to see some what I think quite possibly going to be some positive Spanish headlines, not because investors really want lots of Spanish bonds, but because the Spanish authorities are not trying to sell many of them.

Q: Therefore, are you saying for the moment that Spain was just a passing scare?

A: No, it’s not a passing scare. The concerns are going to be there. The concerns are probably going to intensify in early May, when we have the French presidential elections, which again will put the spotlight on the tensions within Europe and the tensions with the European central bank. Any relief that we see is only going to be temporary. It’s not that the Spanish problems are now behind us. It’s just the tactically rather than strategically there is a little bit of scope for a bounce here, but it’s a short-term call and certainly not one that suggests that we can go, for the next three months, without any concerns. But tactically there is a scope for a rally from here.