India slowdown not over; structural issues remain: Matthews

Bank Julius Baer is not very upbeat about the India going forward. Mark Matthews, its Head of Research, feels that the slowdown in the economy is far from over. India is still stuck with structural issues such as deficits which are adding to the volatility.

The recovery in the emerging markets (EMs) of India and South East Asia have stretched too far, while Japan, Korea and Taiwan look more attractive, he says. However, the worst may be over for the rupee, he says, in an interview to CNBC-TV18. Also read: Economic issues, leadership main election planks: Jaitley Below is the edited transcript of his interview to CNBC-TV18. Q: What is your sense about the recovery in emerging markets, both currencies and equities? Are we at the end of this recovery or is there more to go? A: In India and Southeast Asia, it has been too far too fast. But, in the North Asian markets, there is more to go in Korea, Taiwan, and China. The vulnerability exposed in India and Southeast Asia could easily return if the Fed flip-flops on its policy. Those north Asian markets are proved very steady during that period. They also benefit from what appears to be a recovery going on in Europe continuing, economy doing fine in the US, and better performance of the Chinese and Japanese economies. Q: What is your base case, if you were a betting man? Is it possible that we will get some more money all the way until December? A: If I was a betting man, I would say they will not do anything between now and December. But, they don’t want to give the green light because they are worried if they do, the markets will explode. So you have to continue to come out with these good cop-bad cop kind of pronouncements. Longer-term if the US economy continues to get better, which will, and Europe and Japan; then rates are going up. But, that is a next year’s story, not between now and the end of the year. Q: Where does that leave the Indian markets then because if the US and Europe and Japan will improve then the developed market trade becomes more attractive? A: Yes, you are right. India has its own internal dynamics as well. The slowdown is over in the economy, monsoon is very good that is a positive. Rajan is proving to be a proactive governor. But, it is still stuck with this structural imbalance and its current account and that vulnerability has been exposed. It is not particularly a market that I am more into right now. Japan is a very special secular story, but then we would come to Korea which is just most obvious beneficiary of a global recovery.