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Apr 03, 2012, 02.47 PM IST | Source: CNBC-TV18

'ECB move, improving US economy may fuel further rally'

The rally across global markets is likely to continue on the back of the actions of the European Central Bank coupled with the improving US economy, said Jeff Chowdhury of F&C Investments.

Jeff Chowdhury, Expert, F&C Investments

The rally across global markets is likely to continue on the back of the actions of the European Central Bank coupled with the improving US economy, said Jeff Chowdhury of F&C Investments.

Commenting on India as an investment destination, Chowdhury said that given the current uncertainty surrounding the P-note and taxation issue, FIIs may think twice before investing their funds here .

ďAs far as India is concerned, the mood is uncertain. If you are a corporate looking to invest in India, you donít know currently that whether as a result of that investment, you are going to be taxed retrospectively in the future. If they donít get certainty, there are many other EMs in the world that people will go to,Ē he said.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: How would you call the next month for global markets? Do you get the sense that risk is still extremely high in the system?

A; Yes, I think we are in a risk on period where the actions of the European Central Bank with improvement in US economy has made people feel a bit better. Given the fact, people were very negative at the end of last year and underinvested this year. I think the rally can continue for a while yet

Q: What kind of role do you see the Fed playing, further fuelling this risk on trade that you are alluding to?

A: I think itís interesting if you read some of the comments from the Fed. There are a couple of things going on. First of all, employment is obviously improved in the last few months, which is encouraging. But what I read into the comments from Fed Mr Bernanke is that there is a chance or worry that the employment trends may not continue. This basically means interest rates will stay low for a period of time and monetary policy remains easy.

Q: Will liquidity remain ample in terms of investing in equities?

A: I think liquidity is generally supportive. The actions of the ECB, as I mentioned earlier, together with liquidity domestically in most of the countries that we follow, is still pretty good. The issue is not liquidity; itís more sentiment driven and whether people want to take risk. I think one of the very interesting things which people must have noticed is the fact that US bond yields have been going up recently. Historically, that has been a very bullish sign for equities.

Q: What is your view on India specifically now as part of the overall emerging market basket?

A: At this point in time, I think our view on India is a bit mixed. I am a long term bull on India. I believe there are a lot of good and well managed companies in India. But clearly, the announcements that we have seen in the last week has raised uncertainty and investors hate uncertainty. They say there are only three certainties in life - birth, death and taxes. We want to have certainty on what taxes we have to pay. We donít mind paying taxes but we need some certainty.

Q: Do you think the confusion over the recent taxation issue and how FIIs approach India will be a big dampener to investment sentiment?

A: As far as India is concerned, I would say that the mood is uncertain. To be absolutely frank, if you are a corporate looking to invest in India, you donít know currently that whether as a result of that investment, you are going to be taxed retrospectively in the future.

Similarly, if you are an FII and want to put more money into India, you are undecided whether to go down the P-Note route because there are worries about the taxation. I would like to emphasize that there is no actual issue here of wanting to avoid tax. But itís a case where people like certainty. If they donít get certainty, there are many other EMs in the world that people will go to.

Q: In a few days, we will start talking about the anticipation from Infosys about its full year guidance. How are you approaching technology as a sector now?

A: We are overweight the technology sector. Generally, the sector has companies, which have delivered well and are in a very good secular position in the sense that the outsourcing trend which started years ago is likely to continue.

We have met a few companies in this space last few months. They are saying the same thing that there is a large part of Europe, in particular, which hasnít really outsourced. So the secular story is good and there are some very well managed companies in that area.

Q: The infrastructure space has had a really big up and down move through the course of this year so far. How are you approaching that pocket?

A: I think itís mixed on infrastructure stocks. Everyone knows there is a pressing need within infrastructure in India even now; particularly in power, roads etc. But from time to time, there is uncertainty in terms of the bidding process that we have seen.

There is also uncertainty about how much can be spent on the infrastructure. So we look at it from company by company. If they are well positioned, we will be happy to invest and if we think they are going to miss out, then we donít invest.

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