Central banks infusing stimulus shows growth is slow: Pros

Also, both Shvets and Sanger say India will be a beneficiary of lower commodity prices and it does not have any major macro headwinds.Below is the verbatim transcript of Viktor Shvets and Arvind Sanger's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: How would you rate this Chinese action? Is it all green as the markets have interpreted or would you worry that in a bit the underlying message of slowdown will hit?Sanger: Right now we have this mix message, last week Draghi and European Central Bank (ECB) talked about revisiting either extending or increasing the size of quantitative easing (QE) when they meet in December, on Friday we got the rate cut of China, these are all signs of slow growth. So at the end of the day it is one of those bad news is good news that if there is more bad economic news which clearly there continues to be sluggish economic news out of both Europe and China, and China's action therefore to cut interest rates is to offset that. Frankly we don’t think of it as having any meaningful effect on our growth expectations out of China but it will certainly help ease the liquidity issues that they are having because of the amount of the money that they have been spending. Latha: After getting both these news are you going out and buying risk assets?Sanger: No, I think we are buying what we like and we are being patient on valuations but we are not saying it is time to buy the markets with both hands because there is more liquidity. I would say that at the end of the day the good news is that liquidity is going to be plentiful and the bad news is that growth is going to be rare.So, we continue to look for companies where we can feel comfortable about growth because that is rare missing component in global and Indian markets right now. Indian markets so far this quarter have also had somewhat sluggish if not absent growth as an overall market. So, that is the key challenge in India, in emerging markets and even in the US. I think the growth aspect in finding companies that can deliver growth is a real challenge. Sonia: Do you think that the Central Bank led liquidity rally could perhaps extend itself?Shvets: No, I don’t think so because I don’t believe there will be any liquidity either. If anything liquidity is likely to contract as we go forward.In fact, what you are seeing is that US dollar denominated global gross domestic product (GDP) is already shrinking, US dollar denominated international trade is already shrinking and so the more Bank of Japan, ECB or People's Bank of China (PBOC) do in terms of stimulating and in terms of generating liquidity, the less ultimately liquidity there is going to end up.So what you see right now is sort of Pavlovian reflex -- liquidity means higher financial asset prices but that is no longer the case. That was the case five-six-seven years ago but today global velocity of money is so low and has been slumping so quickly that I do not believe it is sustainable. In fact if anything liquidity is likely to get less not more.Latha: Let me come to what the Chinese policymakers have done, with the reserve requirement cut, the cash released into the system is 600-700 billion yuan, that is what USD 93-100 billion, will you on that news buy Chinese stocks or those who trade with China?Shvets: Not on those news at all. All Chinese are doing is just replacing liquidity that is leaving. In other words, they are making sure that overall there is no liquidity contraction in China and I think they have a capability of doing that because the reserve requirement ratio is very high, their real interest rates are very high. So they have a capability of doing it.However, that doesn’t imply necessarily that you are injecting a lot more liquidity in terms of buying China. We are buying China for different reasons but we are buyers of China primarily because we are still very much in a deflationary mood and will stay in that mood for years to come.So commodity consumers rather than commodity producers generally should do better and the countries that have trapped domestic liquidity should do better than countries that completely depend on the global flows. I think China fulfils that criteria. So we are still in China but not because they have just injected a little bit of money in order to stabilise the liquidity.

_PAGEBREAK_Sonia: You just mentioned that you continue buying markets that you like. Is India on your buy list? Sanger: Yes but selectively. At the end of the day we are not making broad market calls, we are looking for where can we find growth, where can we find companies that have a bottom-up story that is growth sustainable and where there are no obvious headwinds from a macro standpoint. I think right now India has at least some companies and some sectors where growth is visible. India doesn’t have any obvious macro headwinds as the other speaker just said. In a low commodity price environment and in a global deflationary, low growth environment India is one of the beneficiaries of that backdrop and therefore as a macro standpoint there aren’t any obvious headwinds in India. On the other hand, if you look at markets like Brazil and other markets that are China commodity dependent, I don’t think the rate cut makes any difference in terms of any expectations of any big boom or even a small boom coming from this rate cut in terms of commodity demand. Latha: The Indian markets like many other emerging markets are over 10 percent higher from their recent lows. The Nifty for instance was about 7,500 about four weeks back, it is quite a rally. At this level would you still buy or is there some positivity from the fact that foreign flows have resumed and domestic flows have been robust for some time now? Shvets: I don’t think it is meaningful to look at indicators like flow of money because it is not particularly useful. What we tend to look at India is far more in a context of a global call in other words commodity consumers versus producers, domestic liquidity would dependent on global liquidity. We also tend to look at India in terms of political pressures and structural reform and we tend to look at India as a PE market rather than earnings market. Whenever you are in a PE rerating types of markets, the investors tend to be very forgiving on those markets skipping and not achieving earnings per share (EPS) estimates because there is no question that Indian EPS for the next 12 months is outrageously high. There is no way those estimates will ever be fulfilled. So, the way I look at it, so long as there is some element of structural reform, so long as there is some degree of political stability and so long as there is some degree of monetary capability, I am still predisposed more towards India than say Indonesia. So, when you say your market topped 10 percent, Indonesian market upped 20 percent in US dollar terms, far more than what India has achieved so far. So, would you rather be in Indonesia right now or would you rather be in India? I still would prefer to stay in India. Latha: Do you expect this ongoing risk-on rally across the world to continue for a goodish bit?Shvets: I would say there is a tendency of markets to melt up towards the end of the year and we are probably going to see it. If that is the period of time you are looking at then it is possible. Beyond that, I doubt it will continue. Sanger: I would agree with that. I think we do have a year; we are setting ourselves up for a year-end rally as long as the market is kind of buying this feel good phenomena right now. However, the real question which comes with all of this injection of QE or similar liquidity supported measures, is there any growth? I think that is one the challenges that we are going to face in the coming months but we may have some room here for the rally continuing.