Don't see prolonged period of risk-off in India: Arnab Das

As far as India goes, he does not see the country heading towards a 'prolonged' period of risk-off.Below is the verbatim transcript of Arnab Das' interview with CNBC-TV18's Sumaira Abidi and Reema TendulkarSumaira: How could this tug of war between the good news from China as well as the continued disappointment from Greece play out in the days to come?A: There will be some uncertainty visible about Greece and that will probably limit the benefit of easing in China and maybe elsewhere.

The macro data is somewhat mixed. It is better in Europe, worst in the US and continues to be quite mixed in emerging markets, while weak in China and disciplined to some extent in India and other places but this Grexit risk (Grexident risk) is a shadow hanging over everything.There won't be a systemic collapse if there is a Greek default or even a Greek exit.

There are firewalls as the European officials have been insisting both at the International Monetary Fund (IMF) and elsewhere that that have been built since the crisis originally initiated in 2010 to really dominate the market.

It is agreeable that these firewalls will help contain the damage, but investors are in a bit of sell the rumour by the fact kind of mode on that issue at the moment.

Reema: I will come to Greece in a bit but first just to come back to the point about China. How are you reading Chinese equity markets reaction to the surprise Cash Reserve Ratio (CRR) cut. It is down close to about two percent as we speak and secondly are you pencilling more easing from the People\\'s Bank of China (PBOC) in the coming few months and if yes, by how much?A: There is going to be more easing pouring in. The IMF spring meetings have been pointing out that China still has plenty of room for stimulus and that is clear.

It is quite a different situation than many other emerging markets which need to borrow in the international markets. China of course continues to be a net creditor.The story of weakness in the market is both about China and the weakness of the economy. Because this was a surprise rate cut this could be a signal that perhaps the situation is worse than people had expected.

There are a lot of different things going on. Obviously, external demand for exporters is not so strong in China for China itself and for the rest of the world.

The property market and the investment capital expenditure (capex) cycle are all slowing down sharply as China reforms and rebalances.The good news is that the rebalancing away from net trade and investment towards services and consumption is generating a lot of jobs.

So. it is much more labour intensive growth, much weaker growth as well, than had occurred in the past.

Also, the markets in China have had a very strong rally for quite some time and so the intentional concerns maybe playing quite well in this pull back as well.

Sumaira: What about a market like India itself? For the fourth day on the trot we are seeing increased amount of weakness. Even with US market news from China fail to sort of enthuse any optimism there. Are the other global markets and India heading for prolonged period of risk off?A: This issue of combination of not so strong economic performance in case of many other countries, particularly India in this instance, without any strong corporate earnings will not be very prolonged.

Again in case of India, something specific is that the economy has not been responding as one might have wished to the easing that has taken place, the collapse in commodity prices and to the uncertainty and piecemeal progress which were on the government’s reform agenda.

These are all factors in Indian case which also includes overarching systematic issue of what happens with Greece which is probably causing a lot of foreign investors in most countries to pull in their horns a bit. That really started on Friday during the IMF.One shouldn’t overemphasise but shouldn’t underemphasise either, the concerns about Greece because of this fear although it is going to be a systemic collapse in Eurozone anymore.

There is a lot of uncertainty and that uncertainty is being fanned by the fact that Greece has managed to alienate almost all of her counterparties and negotiating partners in the Eurozone and the animosity in the difficulty.

Although there is some good public words about all of this and at one level there is every desire to keep Greece in the Euro, it is also proving to be very difficult to sign a deal. The fact that the deadline keeps delaying, says that everybody wants to sign the deal but they can’t meet halfway.

Reema: While we understand your point that you don’t see a systemic collapse if there is a Greek exit but will there be a Greek exit? What is your base case assumption because Greece needs to pay about USD 763 million to the IMF by May 12, then they have got 11 billion euro of payments which are due in June and July to the ECB and IMF. Do you see them upholding all these payments? What is the base case scenario, will it default or will it not?A: Well, sooner or later there will have to be some kind of restructuring and if not, there may well be a default. The Greeks will end up being very reluctant to default and will eventually come to the bargaining table.

They have done that already once under the Syriza government so there is every reason to think that they will again. There is a kind of public perception that the Greek government seems to be fanning that this isn’t us versus them situation where the Greek people owe too much debt to all these hardnosed creditors in the rest of the world particularly northern Europe, the ECB and the IMF.

This is also true that there is a large amount of external debt, but most of that external debt that is still held abroad is held by official creditors and not market creditors. This limits the room for systematic consequence and even for systemic collapse of the financial system.But a lot of debt is being in effect domesticated. The Greeks have an emergency liquidity arrangement as it is called with the ECB.

Here, the central bank of Greece is the only one really at the margin continuing to buy or take on Greek government debt in order to provide liquidity to the Greek banks because of the capital out fuzz and deposit out fuzz in the really slow motion run that is taking place on the Greek banking system.

So, in effect gradually some of that debt is being transferred from the rest of Europe into Greece. So, as this process continues, Greece will be shooting itself in the foot and people will eventually figure that out at least in the government even if not in the Greek population by continuing in this direction. So in the end the Greeks will come to the table and they will figure something out.

The bad news is that all that we can really expect from the governments in Europe is to extend the debt and reduce the coupons. Not forgive the principal and that probably won’t be good enough for the long run. The situation is still unsustainable. So we can continue to stay this off but it will keep recurring as an issue.