Still comfortable with long-term India holding: StanChart

Despite the stellar recovery seen in equities, Steve Brice of Standard Chartered Bank says FIIs continue to approach the Indian market with caution. He says there is much more optimism domestically with the change of guard at the Reserve Bank of India (RBI).

“The fundamentals are much better in comparison to the 1991 crisis. That environment just needed that circuit break to lead it to a very sharp rally from oversold levels,” he told CNBC-TV18 in an interview.  On the global markets, he says that Syrian issue may not have the kind of impact as compared to the news flow from other Middle Eastern nations. More than Syrian crisis, there will be other news that will be significant factors for the markets going forward, he adds.
Also read: DoubleLine's Gundlach calls Indian stock market 'scary' Below is the edited transcript of his interview to CNBC-TV18. Q: How would the markets respond? Does this possibility of an armed conflict resurface after a few weeks? A: I suppose it is always possible. This is a little bit of market noise in the short-term; the actual structural implications of any action or no action should be fairly limited. Syria, we have humanitarian concerns in terms of purely economics or financials markets. Syria does not produce significant amounts of oil; it is not used for the transportation of oil which is the usual dynamic that leads to an impact from Middle East tensions. Therefore, yes it creates some noise. It might lead to oil spike if we see some sort of strike, but we think there are other factors which are much more important. Q: On the risk appetite across equities and emerging market currencies, is it good to go for more? We have seen increases in rand, real, rupee, and rupiah. Is there more to go over there? A: If you are looking long-term, the likelihood is that there is more. The key challenge is that we have seen a very positive risk on response over the last week or so. Whether that is going to continue in the next month or two, we are not that convinced. The main reason for that is we have got quite a lot of event risk coming up. The Middle East isn’t that important. We have got Federal Reserve tapering. The Fed succession is also going to be important, German elections and the Chinese Plenary session in November too. So have got all these factors coming out, they could lead to short-term market volatility. So, after such a strong rally in the past week, may be there is a bit of time for equity markets to pause and riskier currencies to pause too.  Q: What about the Indian markets? We have seen a bit of a recovery in the last 10 days where the markets have moved up about 10 percent. How are global investors approaching Indian markets now? A: It is still with a little bit of caution. People domestically are getting a little more optimistic; the change in leadership in the RBI supported that sentiment shift. We almost needed that circuit break of people to say the situation in India is not as bad as everybody is making out. The fundamentals are much better in comparison to the 1991 crisis. That environment just needed that circuit break to lead it to a very sharp rally from oversold levels. The challenge is how we build on that from here? As we head into elections in India, clearly there is going to be a challenge on getting significant reform through from the government. So, the key question we had is in the short-term will these gains be built upon and we could still see an environment where the dollar is bottoming out globally. We do see some of that risk aversion coming through in the short-term whether we can see actually some of those gains given up. You said we have seen a little bit of rally that is an understatement, 10 percent in that period of time is a very sharp rally. Q: Do valuations at the moment don't look stretched? There were people telling us at 5200 that they could still see the Nifty go further down. At the moment you wouldn’t think that long-term funds would be tempted to sell? A: I really don’t think so. People are saying that they could go further down in the short-term. Of course, they weren’t looking at fundamentals in terms of the valuations. They were looking at where the policy change is going to come from and the momentum behind the market was very poor at that stage. So, if you still stand back and look at valuations relative to China, India doesn’t look that cheap. But, if you look at it relative to history, then even at current levels, it doesn’t look stretched at all. So from that perspective we are still comfortable with India as a long-term holding. And if we do get past the elections then that may lead to significant reform which would be better as well.