Expect 5800 on Nifty; Fed to go slow on tapering: Geosphere

Arvind Sanger, Geosphere Capital Management expects Nifty to head towards 5,800 because both the Hong Kong and Brazilian indices have both moved up against their 200 day moving averages (DMA).

He also believes that the Fed will go slow on tapering because the US non-farm payroll was disappointing in terms of showing strong improvement in the labour market. Also read: India's crisis a 'wake-up call': Stephen Roach
Commenting on the rupee and the measures announced by the new RBI governor, he says in the short-term the rupee could strengthen by 2-3 percent but beyond that it will be Fed decision and how the tapering plays out in the market which will be much more important for the direction of the rupee than what RBI does on September 20. Below are the excerpts of his interview on CNBC-TV18 Q: How have you interpreted the non-farm payroll numbers, do you think that risk assets will be favoured for the moment in emerging markets especially in India?
A: Certainly the non-farm payrolls were somewhat disappointing in terms of showing strong improvement in the labour market. Therefore, there is I guess increased hope that the Fed will go slowly in its tapering even if tapering does get announced next week and starts fairly quickly after that. It is going to be a slow gradual process,
We have already seen that bad economic data in the US is good for emerging markets and vice versa. Right now, the last economic data was not suggestible for a very strong US economy and therefore that is hopeful for risk asset classes.
Looking at a couple of emerging markets both the HSCI in Hong Kong and the Bovespa from Brazil have both moved right up against their 200 day moving average (DMA). So if I compare that to where the Nifty is, the Nifty should be headed towards the 5,800. So, we are very much following a global script in the Indian markets and that is being helped partly by what is going on with US economic data, which was suggested that the US economy is not getting too hard too fast. Q: When you said partly, I assume the other part is what happen in India with the rupee, what are your targets or trajectory for the rupee after the series of things that the new Reserve Bank of India (RBI) Governor has announced?
A: It is interesting. If you compare the Brazilian real is up 8 percent from its weakest point. The Indian rupee is up 5 percent. So it is again following a trajectory, where I would like to believe that Raghuram Rajan who I have enormous respect for is the magic wand, which is behind the rupee rally.
He clearly made some very positive statements which will be very helpful in the long run but let us not fool ourselves in the short run at the direction of rupee as it is going to be for other emerging markets will be driven by much more global macroeconomic factors. I don’t expect any rabbits out of the hat from the RBI policy statement on September 20. Therefore, I am very encouraged with the medium-term and long-term benefits of the steps made out by the new RBI governor but I am not sure that they are able to fight global forces of liquidity flows in and out in the very short-term. Therefore, the rupee will strengthen another 2-3 percent but beyond that the Fed decision, and how the tapering plays out in the market will be much more important for the direction of the rupee than what RBI does on September 20.
So, we will have to wait and watch over the next few days, how things evolve. I am not to call it all clear that we have seen the worse in the rupee, we have seen the worse in the market. Although I would like to believe that and I think it is possible because the markets are already discounted a fair bit of the fears about the Fed tapering but the US economic fundamentals will provide mix results going forward. I am not sure if the data point is going to be equally weak and the Indian economic data will also provide some mix results. So, it is too early to call that the worst is completely behind us. Q: What about this India versus China argument because many people believe that even though funds maybe allocated to some of the Asian markets, China will get a bigger allocation because the economic situation is improving rapidly in the Chinese markets, what is your sense there?
A: Clearly, China has seen a rebound. We believe that it is a seasonal rebound. We think that maybe people got too pessimistic a couple of months ago about China slowing down and remaining much slower. I think people got much more pessimistic, now that the view is coming back to the fact that they may be able to sustain 6-7-8 percent, I am talking about real numbers not the reported numbers whether they can sustain that then the market rally may have a little more legs.
However, I am not sure that the China recovery is anything more than that - than coming up the oversold conditions. So, China has maybe little bit more rally to go but I am not so sure whether China is after the races.
When we talk about India one of the challenge is just because the RBI governor has made some very positive statements does not remove the significant economic risks particularly because the political system continues to add more weight to the Indian economy and I am not sure that land acquisition bill has gotten enough potential in terms of its potential medium-term to long-term negative consequences in addition to food security bill.
India’s Achilles heel is not really China per se although it could be moderately so. But it is really going to be - are we going to get meaningful further action by the government in terms of fuel price increases, other actions and I think this euphoria can feed very quickly if the political will on the part of the fiscal situation is not there, the RBI governor cannot wave magic wand and wish away all the economic problems that exist on the fiscal side.