India not hot buy now: Commercial Economics

He doesn’t expect the spiraling European debt crisis getting resolved with any quick fix solutions. "European crisis will come back with a vengeance next week when the Finance Ministers meet," he said in an interview to CNBC-TV18. 

He expects the European markets to decline post Finance Ministers’ meeting next week.

Further, he doesn’t see India as a hot investment destination due to rampant corruption and economic inefficiencies. "GAAR seems to be discouraging foreign investors and that’s why even if the stock market were to rise, I think particularly the foreign investor would lose on the exchange rate," he elaborated

Below is the edited transcript of Pfeil’s interview with CNBC-TV18. Also watch the accompanying video.

Q: What are you expecting in terms of action from the ECB and the BoE (Bank of England)? The consensus appears to be a 25 bps cut from the ECB and maybe some more bond purchases or asset purchases by the BoE. Will this be enough to give the current rally some legs?

A: No. I think what we will find is that the rally will welcome these moves. So I agree with what you have just put forth about those rate cuts and those bond purchases. But I am also of the view that it would be what we call in broking a dead cat bounce.

It seems to me as if the European crisis simply cannot be solved. It’s not that it won’t be solved, it cannot be solved. This is where markets maybe erring a little bit expecting an American style solution forgetting that the Europeans are 17 nations fighting it out with each other.

Q: You expect a 25 bps cut from the ECB tomorrow even on the 1st of August. Earlier you told us that the Fed might go in for QE3, China may go in to cut reserve requirements. So despite the monetary stimulus which has come in you don’t expect the global equity markets to continue with their rally at least for the next two to three odd months?

A: No, I don’t think so, because I think that the old chickens will come back home to roost. What I mean by that is that the European crisis will come back with a vengeance next week when the EC Finance Ministers meet.

Even the Fed has said that the US growth isn’t exactly picking up, it is stabilizing, something which we have warned about for sometime that it’s only stabilizing, it is not recovering.

Japan remains in a doghouse and China will have to wait one to two quarters before growth starts stabilizing and picking up. I don’t think that those are good economic time out there for stock markets.

Q: What about the recovery we have seen in the metals market and an absolute rally that we have seen in the crude market? If the growth story is indeed as bad as you have spoken of and as bad as the data indicates, will these rallies have legs for other reasons, maybe because there is so much cash that may slosh in the system?

A: I don’t know the metals market so I can’t really comment on them. I suspect though that with the energy markets, in particular with the oil the problems in Iran are not going to go away either. I see that with some trepidation. I think that those weekend and those military gains that the Iranians are playing will cause a lot of uncertainty particularly if they get themselves involved in the Strait of Hormuz and start blocking the oil flows.

I am afraid that the oil prices will continue moving up. That will avert growth yet again. So the only bright spot in the commodities that has legs in my mind is because of our dear friend the weather, La Niña in particular and that means that corn and soybeans will continue performing very well.

Q: You spoke about there being no upside in the equity markets. But is there a substantial downside in the equity markets or perhaps they are likely to just remain range bound?

A: After this dead cat bounce there will be quite a strong swoop down from the top of the rally. This is because once we see that European Finance Ministers Summit really heading for a crash landing next week when all the bickering really starts in earnest, then you will find those markets fall quite considerably from the rally peak that we should be expecting from tomorrow because of that ECB loosening.

Q: What about India? Do you track the country and its stock markets at all? We have seen the Nifty move from a narrow range of 5000-5200 to just a shade north of that range. Are you a buyer, seller in Indian stocks?

A: I don’t confess to follow India in great detail, but I do look at it for our blog sites. What I do suggest is that India is not a hot buy at this stage. Economic time in India is not conducive to profits. I think that they will probably be declining.

I am afraid that the press has been at least saying that you have a lot of problems with corruption and also with perhaps an inefficient government it’s very difficult to push things through.

GAAR that you recently reported on seems to also be discouraging foreign investors. That’s why I think that even if the stock market were to rise particularly the foreign investor would lose on the exchange rate. So I am looking for your exchange rate to fall further.