Fiscal consolidation is end-game, bank bailout: Expert

Jeff Chowdhry, head of emerging equities at F&C Investments joins CNBC-TV18 to discuss what to make of the global markets and what to expect of the EU Summit on October 23. He says that the markets may rally as people say that they are solving the issues in Europe or are trying to work it out."However, the fundamental problem remains unresolved," he says. "The fundamental problem is that we have got monetary policy for the whole of the European Union, but we have a fiscal policy which is run by individual countries," he explains.

In the meantime, what India can do to attract the cash waiting on the sidelines is India can improve the decision-making and free-up certain rules in terms of foreign direct investment, he says. Below is the edited transcript. Also watch the accompanying video. Q: Are we going to see a resolution over the next few days which lead to a rally in global equities or do you think global markets are not seeing this as a game changing event?
A: I think the problem that we have is that the solution which has been talked about now for a couple of weeks, there is a high expectation on the market. I think we are going to have a situation where next Wednesday, hopefully, there will be announcement in terms of debt forgiveness and bank recapitalization. But I am afraid we are not in the end-game. The end-game is ultimately that we need to have fiscal consolidation in Europe and ultimately Germany has to stand behind that. Q: What is your sense of how heightened risk levels are at right now and how much are people holding out in terms of risk alleviation, pending some kind of solution from the EU?
A: I think generally people are very nervous. If you look at books across the world, they are very flat. People are not taking big long positions and hedge funds have got flat books. So I think people are quite nervous about events up to next Wednesday, but as I said, the problem basically is that the politicians have raised expectations and we have seen historically, in terms of European politicians, they talk a good book but they deliver less. So I am pretty nervous that they are not going to come up with very much to be honest. Q: If you do see a bank recapitalisation plan of around USD 200 billion and a slightly detailed EFSF working plan, do you think we see a temporary rally in equities or changes of disappointments are still higher?
A: I think the chances of a bear market rally or temporary rally are quite high because people have got such flat books. People want to see the glass as half-full rather than half empty. Ultimately it doesn