Fed hike in 2015 unlikely; won‘t sell India now: Rabobank

Michael Every of Rabobank believes the liquidity led rally seen in emerging markets could lead to significant volatility. In addition, US Federal Reserve dithering on rate hike indicates they are worried not only about US growth but also global growth.According to him the likelihood of Fed hiking rates in 2015 has reduced significantly.India specific, he says although it has been a relative outperformer, the backdrop is still very gloomy and one should be cautious. He thinks it is better to preserve capital but investors need not sell India now if they own it. Below is the verbatim transcript of Michael Every's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: What is your reading of the way in which risk assets have begun to rally. Is this indicating that the Fed hike is off the table for all of 2015, in fact we have now data that emerging market funds have started seeing inflows? A: I think the likelihood of any hike this year has been significantly reduced and that said the inflation number out of the US yesterday were running slightly hawker than most of the Federal Reserve were expecting to see. Yes, the likelihood has reduced and if we do move 2016, in the near term, one can say that that's a positive for EM Fx.However, as I keep saying every time I talk to you, on an underlying basis it makes me even more worried if really the global reserve currency - the dollar, which is essential to the global economy, the US isn't able to raise interest rate. With regards to India  being a relative outperformer against the gloomy backdrop but that backdrop is still very gloomy and we have to bear that in mind all time. Sonia: For the very near term, until start of 2016, do you get a sense that from now until the end of the year there could be more liquidity flowing into emerging markets including markets like India? A: I think it is going to be very volatile because sentiment can shift quickly, so much money has come out that you could see some starting to flow back in again but at the same time all it is going to take is basically some hawkish Fed speech, which we still have the opportunity to see any particular trading week or one really strong number surprisingly as an outlier in the US and suddenly everything will screen back in other direction. I think you have to be very practical. It depends really on the timeline you are trading on. Sonia: How do you approach emerging markets now? If the market setup is going to be extremely volatile as you pointed out, what should investors do at this juncture? A: I think most investors should avoid them at the moment. India within a particular universe is an outperformer and I have repeated that earlier as well, but as a universe, at the moment, is probably in more trouble than it was in an extremely volatile environment. Latha: Are you buying India now or are you not just selling India? A: If I held India I would be not selling, let's put it like that and I again repeat that my particular focus is maybe longer-term than most individuals and my primary thought at the moment at this level of volatility, is preservation of capital, not trying to squeeze out an extra 2 percent before the end of the year.