RBI continues its prudent monetary policy actions: Robert Parker

Robert Parker, Senior Advisor-Investment, Strategy & Research at Credit Suisse UK, has called the interest rate cut by the Reserve Bank of India (RBI) a prudent monetary move. In his interview with CNBC-TV18, he also added that investors who hoped the RBI to cut rates further expected a bit too much out of the central bank. Parker believes this year the emerging markets like China, Brazil and Russia will relatively outperform the developed markets.

The global markets have tumbled again. Parker said that a fall in crude prices has negatively impacted investor sentiment. He also mentioned that FY17 will be a frustrating year for the market as we won't see a trend bull market or a trend bear market. He cautions that the market will see a repeat of FY16, when the downside was more pronounced than upside.Below is the transcript of Robert Parker’s interview with CNBC-TV18's Latha Venkatesh and Surabhi Upadhyay. Surabhi: Your thoughts on the big slide that we are seeing across the world and India really couldn't stand out in any case even as we are speaking. European markets reeling under pressure. What is spooking investors and traders all over again? A: The first comment to make on India is the action by that the Reserve Bank of India (RBI) is very prudent indeed and I do think that some investors who expected them to take further action frankly were somewhat over optimistic. So, the RBI is continuing with its prudent monetary policy. A cut in interest rate is justified but I do think with respect to India I do think the market got ahead of itself a little bit expecting too much from the RBI. So, that is just on India. Now, if one goes on to global markets clearly we have seen a further slide in Japan today down 2.5 percent. In Europe most of the indices are down in excess of two percent and there are a number of factors. The first factor is the fall in oil prices is giving a negative background to investor sentiments and as we talk West Texas Intermediate (WTI) is now trading less than USD 36 per barrel compared with close to USD 40 per barrel a few days ago. More importantly we are coming into the first quarter earnings season and investors quite rightly are very cautious. They are assuming that topline revenue growth is going to be weak against a background of frankly rather mediocre economic data out of America, Europe and Japan. Therefore any improvement in earnings is going to be driven by cost cutting and not by top line revenue growth. So, expectations for earnings are poor. The backdrop on the economic data frankly is not great which I wouldn't say they are disastrous but again mediocre data out of Europe on the Purchasing Managers' Indices (PMI) and the durable goods orders numbers we had out of America were three percent month on month (M-o-M) decline. So, everything fits into this sort of rather lacklustre growth outlook, poor demand and therefore reduced expectation on corporate earnings growth. Latha: Some of this data was already known, what is spooking the markets afresh? Is it a fear that strong US data could still mean that the rate hike is on the table even as the rest of the world is reeling under near recessionary conditions? A: We have a very clear picture on the growth outlook in Europe and Japan. For Japan this year growth is going to struggle to get above 1 percent. In Europe the first quarter growth numbers annualised are probably going to be just over 1 percent. For the year as a whole I think it is going to be difficult to see growth much above 1.5 percent. In America, the consumer picture has weakened a bit in the last couple of months. The overall picture if you look at the data on the states it is consistent with about 2 percent growth for the rest of this year and that supports the Fed raising rates but again doing it very slowly indeed. So, I would stick to the view that this month we won't see the Fed moving. However I do think we will see a move in June. So, that in a way puts a cap on markets and it prevents any sort of further major advance in markets. So, it fits into rather gloomy outlook for global equity markets that we are experiencing at the moment. Surabhi: In that case if you are expecting a June hike then this latest rally that we have seen across global markets which began somewhere in the second week of February is it topping out or do you see it reversing, which means do you see a fresh correction now kicking off? A: There is a high probability that we could see in April or May a fresh correction. The point I want to make is for the rest of this year I think it is going to be a very frustrating period because we are not going to see a trend bull market or trend bear market. I think we could see a repeat regressively of what we have already seen this year which was as we know very well a very poor January and early February, then a rally in late February and now that rally is running out of steam. So, I think we are going to see this market where the upside is probably only 5-7 percent relative to where we are and the downside is perhaps 10 percent for MSCI World. So, we are not looking at a trend bear market at all, we are looking at this as rather unsatisfactory trading range. As of today I think the downside is probably more pronounced than the upside.