Rally not over; Strong Re will boost equity: Nick Parsons

Nick Parsons of National Australia Bank explains to CNBC-TV18 that the rally in the European markets is not over yet and that a stronger rupee could boost the Sensex which is within striking distance of the year's high of 18,520.

Below is an edited transcript of the analysis on CNBC-TV18. Q: Is it time to worry about what the Troika will present Greece or that Rajoy (Spanish Prime Minister) has still not asked or aid? Or do you think the rally will continue?
A: It's not yet time to worry about those. This rally has got further leg and in our view, will be extended. In an earlier discussion, we were extremely bullish on asset markets, on the ECB and felt that the Fed would initiate a full-blown QE.
However, not many investors shared that view and globally portfolio money has been running underweight currencies, underweight equities and underweight risk. It’s only two weeks ago before the quarter ends and investment managers have to show some performance. So we are going to see investors buying into this market on dips. So I do not think it's over yet. Q: Do you think that the commodity rally, especially the rally in crude, could be more muted?
A: I think that’s a good point. You will find very few investors who believe that the period between now and the year-end, will see new highs in either precious metals or industrial metals or in oil. So although investors are looking for a rally, there isn’t that belief that fresh highs are going to be made in this cycle.
Instead investors are turning their focus towards real assets such as equity markets and there has been quite a spectacular underperformance in some markets as compared to others and I think that emerging markets are actually going to come and play some catch-up with the performance that was seen in the developed markets. So I think this is an unequivocal positive for emerging markets. Q: What is your view on emerging markets? Do you see expect China to start outperforming? What is your view on India at this point?
A: On China a little bit of positive momentum is desired and currently, there are no signs of that yet. The market is down almost 30% from its recent peak and although the Shanghai Composite managed to eke out 0.6% gain today, it is clear that the investors are not eager to buy.
It is one of those odd situations, if I may call it, where the market is not high enough to buy, signaling that neither the momentum indicators nor the moving averages have turned. My view is that if the Shanghai Composite starts to move from the current levels of 2,100, to around 2,250 with a turn in the moving averages, then we might start to see a bit of a momentum.
The 100-days moving average, for example on Shanghai Composite, is 100 points away at 2,226. This clearly explains the investor-trend of not being interested in the market because it is not high enough. It sounds paradoxical but I hope that explains it. Q: The Indian government has finally increased fuel prices and if the price of cooking fuels is also increased rather decisively, the fiscal deficit will be reduced by 28-30% in the coming years. But this would worsen inflation. Does that make India a out-, under- or market-performer?
A: India's within striking distance of the year's highs. The Sensex's high for the year was 18,520 and the Index is already at 18,440. So, the Index is a day away from recording a fresh high for the year with currencies holding the key. If the rupee is a little bit lower or stronger against US dollar, the market can venture onto a new trading range.
That new trading range if I could describe it, is that if the rupee gets below 54.20 and currently as we speak, it is at 54.74, so we are not far away from it. Below 54.20, there is scope to go all the way back to 51 and I like to see currency moving hand-in-glove with equity because that tells you that there is foreign participation.
My sense is that if we get below 54.20 on the dollar-rupee then that would show the foreigners are starting to take notice of this rally which is not just domestic.