'Earnings turn 1-2 qtrs away; need fiscal, monetary push'

But if you just clutter through away from all of that and just see the body language in the press conference, it was pretty clear that Janet Yellen is saying that she will, that they will air on the side of being very confident that they can hit inflation at two percent and only then they will do any series of tightening. And even that will be very slow. She said probably four or five times that the starting date does not matter, but the pace. And, Stanley Fischer has said that it will be a crawl rather than a lift off. So, they have made it amply clear that they are going to air on the side of taking it easy and as you said, European Central Bank (ECB), Bank of Japan, they are all pretty much in a printing mode. So, yes from a Central Bank liquidity point of view, I do not think there will be an issue. There are of course other issues that people’s own relative ranking of India versus other competition, that has changed quite a bit. But, yes, from a Central Bank point of view, I do not think there is a problem.

Q: Where do you see yields? Because in the last 8-12 weeks, German bunds and treasury yields have given us some stomach churning moves. So, basically dollar, US Dollar Index (DXY) as well as global yields, will they be largely within current ranges or should we expect tremors?

A: There was a fear that FOMC was going to be a little more hawkish that 10 year treasury yields could have broken out and headed towards 260-280. Again, the press conference made it very clear and that is why you saw actually the market was selling off initially but the won market came back. So, the range is we are still going to be within this range that we have seen so far this year. German bunds has had a dramatic move from five basis points to over a percent and that is a wide enough range. They will safely stay within that. One other interesting point there is that Mr Draghi has made it clear that they do not want, even though he said, some volatility is to be expected, beyond a certain point of range, they do not want that to happen. So, this is a wide enough range that beyond that, this is not something the Central Banks will be happy with.

What happened with bunds is that the Commodity Trading Advisors (CTA) which are a subset of the global macro hedge funds, they are mostly momentum chasing, sort of trend traders. They had very large positions in bunds. It was the biggest position and so in fact, if you chart CTA index versus the bund price, you get a remarkable correlation. So, that unwinding of that position has started. Some reasonable amount has taken place. So, once that bad long positions are flushed out, then bund will settle down.

Same thing happened in the euro versus the dollar, that we had reached all time extremes in terms of positioning of short euro positions. And we have corrected from something like close to 200,000 contracts to about 130,000. It needs to correct a little bit more and then I think the dollar strength can probably re-emerge. So, positioning was very extreme and that was another reason why you saw such stomach churning moves.

Q: As Citi forecasts ad a whole host of people are forecasting, there is that one rate hike at least in 2015. If the yields were at that time to go to two and a half or 2.7 on the US treasuries, what is the repercussion? Is India going to face a few days of tremors or should we worry?

A: if it is one rate hike, that is very well baked in. I do not think that should create any tremors in the Indian market. Hopefully it will not even create that many tremors in the US treasury market. The US corporate bond market, by the way is a separate animal. There the positions are very stretched, the spreads are very low, the bank market making desks, dealer community is very short in terms of balance sheet. They cannot really make markets on large volumes to take down from sellers. The corporate bond market could go through some painful sell-off. But, hopefully the US treasury will be relatively less affected and the Indian treasury market should be less affected. If they get more hawkish and the two tightenings become a given, then there is a possibility of a, I do not know. But again, nothing too dramatic. Maybe 15-20 basis points. But I do not see, in the Indian market anything beyond that. I think we have our own set of problems.

Q: The reasons why I am coming to dollar and to yields is that you just said that a little more short positions and then the dollar could start strengthening. That would be commodities negative and good for us. But basically, what is your stance. One of the other reasons why we saw this sell-off in India in the last 12 weeks was also because crude started correcting from USD 45 to USD 65. How should we prepare for the next six months or 12 months? That crude is at current ranges or does it appreciate?

A: Crude actually plays multiple ways. In fact if you look at the Standard and Poor’s 500 (S&P 500) Index, its correlation to crude, it is not negative. In fact there are so many industries which have so much weight to it. The whole shale revolution was a big facet of the US story, so much employment in the US actually came from that sector. I do not think necessarily it is a big negative for the US. For the Indian market through the bond market through the RBI stance, it becomes a little more important. The Indian market has gone through a healthy correction for a multitude of reasons, not necessarily crude. Crude would be a small portion of it.

So, going forward I think it will hopefully be back to domestic factors. The Federal Reserve was an important issue that was out there and that Ms Yellen has pretty much laid to bed now, at least till September possibly in an answer to your question ,she even through in March there. I do not know if you know this. So, that worry is gone, so again we can focus back hopefully on domestic factors.