BoE will be in easing mode to avoid major trauma: Rabobank

There is lot of disharmony and discontent in the UK but the levels are higher in France and Italy, said Jane Foley, Sr FX strategist of Rabobank. There could be referendum in the Netherlands and Denmark, she added.She maintained that central gravity of the EU will move further left now and the central banks (including Bank of England) will be in easing mode, which will help push growth higher in the short term.She added that the US Fed rate hike now seems unlikely. It will have to assess both domestic and international indicators and ensure enough liquidity in the market before taking any decision on rate.She also said that Asian currencies have now become risk averse now, however, Yen will remain a haven amongst all the major currencies. Vikas Khemani of Edelweiss said that the leaders across the world are making a lot of efforts to calm down the markets, after the UK voted out of the EU. Indian markets' reactions are dependent on global market, he added. He further siad that India's fundamentals will remain strong, and domestic inflows will be robust in the time to come.  
He is bullish on banking and financial, consumption stocks.            

 Below is the verbatim transcript of Jane Foley and Vikas Khemani  interview with Shereen Bhan and Anuj Singhal on CNBC-TV18. Anuj: I was reading one of your earlier comments that the real legacy of Brexit could be unwinding of the Euro. Do you see Euro not just gaining parity or going to parity, but a complete unravelling of the Euro. How high would that risk be? Foley: The risk of that is certainly going to today than it was yesterday, but already there was a lot of disharmony in Europe opinion polls are showing that there is some discontent with EU and variety of countries and notably the levels are higher in France and Italy according to some polls than they are in the UK. Now, we have just heard that there could be referendum in the Netherlands that is too although a quit in the Netherlands that would be not necessarily legally binding, similarly we might have in country like Denmark, then reassessing their relationships with the EU given that the centre of gravity would move further left without the UK on board, so for number of countries they will now have to assess their positions. There is already a lot of voter discontent we have seen, riot police on street in France yesterday because of protest against labour market reform. We seen protest in Spain last months ahead of local elections. We do have a general election this weekend in Spain, so there is a huge amount going on politically in Europe already and the referendum in the UK is just on the spotlight in those fissures that already exists. If there is more critical uncertainty which is likely that is a detriment to growth that is why it is more likely that central banks will be in easing mode and one fact will help in the short term it probably isn’t enough to push ahead with growth if the political outlook look very fractured. Shereen: But as far as the Fed goes now is it fair to assume that any possibility of a rate hike is now completely off the table is a dead deal? Foley: It seems more likely that will be the case, but it is probably too early to say that with huge conviction at this rate. Now clearly the US Federal Reserve will be looking at domestic indicators first and foremost and then outside at that global headwinds. Now those global headwinds have certainly picked up, so we could certainly say a Federal Reserve interest rate hike looks less likely, but for all of the central banks their first point of call, a first defence is to ensure there is lots of liquidity in the market and they will all be doing that and then they will have to wait and see, wait for some economic data and try and work out how exactly those risks are, how big those risks are, so what’s it seems quite likely that you will have perhaps less chance of a Fed interest rates hike and it seems more likely that you will get interest rate cuts from the likes of the Bank of Japan, ECB etc. The only thing we can say about huge amount of certainty is that the central banks are likely to ease in the next few months. Those ones which probably would have been easing anyway and again even for the Bank of England they will probably wait and see. I don’t see it will only get reactions from them in the very immediate term. Anuj: What did you make of the market reaction, 2 percent down, it could have been any other day. Surely there would be some ramifications of the Brexit issue which can't be just dealt with in one day? Khemani: Market opened with a significant gap down and as other international markets opened, even international markets opened down and kind of recovered and so did the Indian markets. So, right now the immediate short term reaction will definitely depend on what happens elsewhere rather than in India. I think fortunately we saw global markets recovering from their lows which is the trend which we saw in Indian markets. I think overall if you ask me net-net markets will watch over next 1 or 2 weeks how situations pan out. It looks like based on the reactions which is coming that there is a lot of concerted effort being made to calm down the markets, to kind of settle down the markets worry right now. We will see how situations pan out over the weekend, what kind of statements come from other parts of the euro. I think the key worry is if other countries or members of the euro if they start sort of having similar kind of discussions or demands, can this be a beginning of end of euro, that kind of worries are there in investors mind. So, we will see what kind of effort communication happens from the governments and the regulators around the globe and that will determine the course of the market in shorter term. Having said that as far as India is concerned, Indian macro continues strong, solid and we have seen good solid buying coming from the low levels and I think that will continue to be there. Domestic money flows is very strong. The overseas money dependence is reducing. So, in that sense today I think lot of domestic money came in and provided support. So, in my opinion Indian market looks fairly robust unless there is a big emerging market outflow kind of situation gets created, I don\\'t see major risk to Indian market in specific. So, overall I think it looks like by next week you will start settling down. Shereen: From a retail investors perspective given the anxiety and the uncertainty what should he or she be doing at this point in time? Khemani: Whenever such kind of situations have arisen and the domestic macros are stronger, there have been bigger opportunities. Whether it was post Lehman crisis, Middle-East crisis, European crisis, whenever we see in the past they have been one of the best time to do buying in the markets. In shorter term nobody can predict market, precisely what could happen but one of the most comforting factor out here is that Indian growth trajectory is very solid, macros are very well in place. If you just over look the sentiment prevailing right now, from a medium to longer term perspective things are panning out very well. So, this would be one of the best opportunities in my opinion if anybody is looking to commit more exposure towards equity markets, this is the best time to kind of look at. You can stager it out, you can kind of look at it and most of the retail investors are coming through the mutual fund in this cycle which is a good movement and I think one should look at investing more in every fall at this point in time because there is nothing which has to do with India. India is going great, whatever we had to safeguard ourselves from any possible implication from a shorter term perspective, whether it is governor or Finance Minister, they have given all comforting statements that they are ready to fight whatever it takes for insulating India from all these global things.