RBI doing its bit; don't see reversal of FII flows: Ambit

The market reacted negatively to the repo rate hike announced by the Reserve Bank of India (RBI) Governor Raghuram Rajan. Pramod Gubbi, vice president sales, Ambit Capital feels that the reaction is not surprising owing to the volatility in the market.

The US Federal Reserve’s measures have just given the economy and the authorities time to prepare for the taper going ahead, he told CNBC-TV18. Also, FII flows will not reverse as they know these are short-term developments, he added. Also read: Now better prepared for Fed taper: RBI guv Rajan Below is the edited transcript of his interview to CNBC-TV18. Q: Thursdays’ optimism seems to be washed away in one trading session itself, but is there a reason to be that pessimistic on the markets? Do you think the markets will just settle down maybe in the next week and just look over the RBI policy? Maybe concentrate a little more on what is taking place globally as well? A: The markets behave in such volatile manners. It is nothing new. We have seen that situation reverse very quickly in 24 hours time from extreme optimism to extreme pessimism. As we have maintained, the truth is perhaps somewhere in the middle. We continue to recommend taking a measured view of the things, given that what the Fed has said day before yesterday is not done and dusted. It is just a matter of postponement. The taper will come back on the table and sooner or later the markets will also start looking at that posing yet another risk for global risk assets. Until then, as most commentators have commented, there is a window of opportunity for emerging markets such as us; the governments and the policymakers to take that breathing space to make yourself less vulnerable to the shocks later this year. To that extent, the RBI is doing its bit. We quite commend RBI’s move to focus on inflation and control inflationary expectations through this repo hike at the same time, reducing the cost of funding through reversing some of the abnormal measures that we have taken in July. It is in the hands of the government; it needs to do its bit. If we see some positive developments, then that should augur well for the markets ahead of the Fed action perhaps later in December. Q: In the last few days the Foreign Institutional Investor (FII) flows into India in the cash market have been fairly strong. Does the RBI policy change anything on the way FIIs will perceive India and therefore the flows? A: Unlikely, negative moves seems to be overdone. I don't think FIIs particularly the long -only who look at India, consider any of these developments as meaningful. These are quite critical in the short-term but given the longer nature, longer time horizon they look at it is unlikely that they will take a call. As you would have seen from May until August even during the quite volatile times, we saw barely USD 3 billion going out of India. So the FII money particularly in equities seems to be fairly solid. In some quarters, the reaction is quite positive today’s development given it takes a longer term view of curbing inflationary expectations. I don't think the FII flows should reverse on the back of today’s announcement.