Ease in inflation, relaxed credit policy to aid mkt: Mowat

India has lost its charm among investors due to its burgeoning economic problems paralyzed by the government's inaction. Adrian Mowat, MD and Chief Asian and Emerging Equity Strategist, JP Morgan, however, feels that the economy can be boosted by shifting focus to easing inflation and a much relaxed credit policy.

In an interview to CNBC-TV18, he said, "Over the next couple of quarters we would assume that the redemption in inflation, the slight easier monetary policy will be leading to reacceleration in growth. Equity markets will be looking to discount that."
According to Mowat, the market is too bearish on policy making in India. Here is an edited transcript of his comments. Also watch the accompanying video. Q: There has been exceptional strength in the US markets which hasn’t quite gotten translated to the Asian screen. How are you approaching markets tactically this month because consensus still seems to be leaning towards the fact that May may see some cuts rather than gains?
A: Yes, I think the reason that markets are doing well is that the economic data, although not incredibly robust, is still showing an expansion. Equity in these markets is inexpensive relative to bonds and cash. So, what you are seeing is reluctant investor reallocating towards growth assets because those growth assets have the underlying support of profit growth. Q: A couple of months back China was the big pressure pocket but now it seems that Chinese policy makers are making an attempt to cushion the slump in investments. We are seeing it from the data as well. Do you think the worries that have emerged out of China are behind us at least for the moment?
A: Possibly for the moment. I would suggest that China is modestly kicking the can at the moment. So, we are seeing a little bit more liquidity being added to this economy. China is probably is adding to the excesses that it generated in the 2008 stimulus. Now that will be enough to keep the growth going but I think it’s compounding its problem. China’s problems are in the back burner in terms of a concern but it will ultimately re-emerge. Q: What is it that you expect to see from India in specific? We have had more than our share of bad news especially on the macro sides. Some clarifications are expected on the taxation issue but how do you think India will fare this month?
A: I think we have got too much bearishness on India at the policy level. Most investors understand the political problems in India, they are aware of the taxation issue and really want a positive or negative clarification on that at some point next week. 
If we move beyond that you have got a very weak economy judging by the statistics that are coming out the companies’ numbers and that’s prompting the Reserve Bank of India (RBI) to cut interest rates more than the market expectation. So looking forward over the next couple of quarters we would assume that the redemption in inflation, the slight easier monetary policy will be leading to reacceleration in growth. Equity markets will be looking to discount that.