Neutral on India, bullish on Europe: StanChart

Rob Aspin of Standard Chartered Bank is neutral on Indian equity market and maintains caution on some public sector banks as he sees their non-performing loans (NPLs) rising.

Globally, he expects the European markets to perform well going ahead in the days to come. Speaking to CNBC-TV1b, he said, there are some great stocks within the European markets and valuations are still relatively attractive. "We see the macro improving, we see margins picking up and we expect to see earnings picking up in six-12 months further,” he added. Also read: Market to react positively to Yellen's appointment: Gokarn

Below is the edited transcript of Aspin’s interview o CNBC-TV18. Q: The European markets haven't taken cue from Janet Yellen. Do you think the shutdown is now dominating concerns and may be that debt ceiling is becoming more and more prominent a threat?
A: I agree with that, I think the key issue right now is the debt ceiling that the market is focusing on. The government shutdown is now becoming one of the longest shutdowns for around six and half days now and that looks like it is going to extend little further so that is becoming an issue as well.
However, in terms of the European equities, we do like the market, we think there are some great stocks within the European markets, and valuations are still relatively attractive. We see the macro improving, we see margins picking up and we expect to see earnings picking up 6-12 months further. Q: We have seen quite a bit of surge in the US yields of late, should emerging market (EM) investors get nervous about that because EMs have been quite strong over the last two weeks or so?
A: Yes. The EMs have actually performed extremely well in the last month or so. The key issue is we see that as a short-term respite and we expect yields to pick up going forward. So, we are expecting the US 10-year yield for example to find a support level at around 2.5 percent from which we expect it will increase to around 3.1 percent over a period of six months and 3.6 percent 12 months further.
Yields are going to pick up in the US, the dollar will strengthen and also there should be a drying of liquidity with Fed tapering sometime later in the year or early next year. That will be marginally negative for Asian equity markets and the debt markets as well. Q: We have just received better than expected trade deficit data for the month of September in India and that was the key contention point, current account deficit (CAD) countries which are so vulnerable to the tapering from the US. How would you read may be a better improving macro situation for India and would it make Foreign Institutional Investors (FIIs) more confident to invest?
A: I think the key thing for India is to encourage Foreign Direct Investment (FDI), long-term foreign capital investment. That is something that is key to reducing the CAD and also the longer-term growth of the Indian market.
In terms of the CAD declining, that is a positive news. We would take the view that the CAD should decline over the next 12 months. One of the key drivers for that is the fact that you have this new tax of around 15 percent on gold imports and that should be quite a large contributor to a declining CAD over the next 12 months.
We are neutral Indian equities at this point in time. I see some very good value across Indian equity markets but one has to be fairly cautious in terms of some of the public sector banks where we expect NPLs to pick up. Right now, we like technology, healthcare and we like industrials.