India likely to see growth downgrade going ahead: Macquarie

Richard Gibbs, Global Head, Macquarie Securities believes India economy may see another round of growth downgrade due to the recent measures taken by the RBI. He believes the recent respite in the Indian market is due to delay in Fed tapering and gain in rupee post RBI’s recent policy actions.

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In an interview to CNBC-TV18 Gibbs advises caution on emerging markets because of the uncertainty about the policy tapering in the US. He also adds that the emerging markets may well have a six month respite with no movement until March of next year due to the need to install a new Fed chairman by the end of January. Below is the verbatim transcript of Richard Gibbs’ interview on CNBC-TV18 Q: Since the start of the year, the S&P 500 is still up 20 percent while the Nifty has flattened out now at best because of the performance in the last couple of weeks. How are you positioned from now until the end of the year? Do you think developed market trade will continue or has emerging market love increased?
A: We suspect developed market trade will continue the emerging market, very cautious about a defensive position in the emerging markets because we still have a lot of uncertainty about policy tapering in the United States and when that is likely to occur.

Q: It somehow looks improbable that after considering the economy unfit for tapering in September, the Fed will move in October, that appears to be one of the emerging consensus or at least majority views, if that is the case, is the emerging market run likely to continue for a while?
A: The taper expectation is probably a bit precipitous because until December meeting, we will not have another two-day meeting that looks at the economic projections. So, I suspect when market steps back and starts to think about this, they will start to look into December as being the next most likely time rather than October meeting. The emerging markets may well have a six month respite with no movement until March of next year due to the need to install a new Fed chairman at the end of January. Q: Dollar buyer is sitting on fairly decent gains in September in India. If you count the dollar and the Nifty gains, some of them could be sitting at good 18-20 percent gains as well. Do you think this is sell level at all, sell valuations in India or do you think people will stay put because of the stability in the currency?
A: A lot depends on what we see with the growth dynamics of the Indian economy going forward. Governor Rajan has increased interest rates once, I don’t think we can have another rate increase and that is not going to be positive for growth in the near-term. So, earnings growth expectations will be affected by that.
At the moment, we are trading on that respite in terms of the delay in tapering in the US also on the back of the policy move by the RBI which has seen a stabilisation and an improvement in the value of rupee, that has taken away some of those immediate concerns over there in terms of capital outflow and further depreciation in the exchange rate. Beyond that, we have to look at the fundamentals and what they are going to look like and I suspect we are going to see another round of growth downgrades for the Indian economy on the back of the latest policy action.