Fed rate hike more a 2016 story; positive on India: JPM AMC

Ian Hui Global Market Strategist JPMorgan Asset Management is positive on India on back of government efforts to push through reforms and other things like ease of doing business etc.

Overall too emerging markets are likely to benefit from the delay in US Fed rate hike. According to him the Fed hike looks like a story of 2016 than 2015. He rules out a hike in October, with only around 30 percent expecting it would happen in December. The foreign fund flows into India have mainly been on back of Fed uncertainty and China slow down, said Hui in an interview to CNBC-TV18.

He is not expecting any major policy decisions from most of the Central Banks across the globe.

With regards to India he would keenly watch for the outcome of Bihar elections because if the ruling party were to win then it would be boost the confidence in the market but even if they were to loose, the government would push through aggressive measures to gain confidence, which in turn would be good for the country. So it is unlikely that they would sell India even if  Bharatiya Janta Party (BJP) were to loose in Bihar. Below is the verbatim transcript of Ian Hui's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: We saw return of funds to emerging markets over the past couple of weeks. You think that besides the Fed hike and the Chinese gross domestic product (GDP) numbers, there is enough fuel for this fund flow to continue? A: I think most of the fund flows, as you mentioned, would have been due to what we are seeing about the Fed, the various mixed comments there, the chances of Fed rate hike and a lot of it would also have been aligned on people worries over China -- people waiting for the GDP numbers that came out yesterday. Other than that I think other minor events, but those two would have been the main events at the moment. We are not expecting any huge announcement from any of the other major central banks. We did see slight easing in Singapore from the monetary authority there. Nothing else has caused the fund flows in the emerging markets except uncertainty over what is happening at the Fed and what is happening with China right now. Sonia: What is the expectation for many of the emerging market equities like India? Will the flow of funds continue into market like us? A: I do think the emerging markets are going to be mixed; some will do better than others. India, as I have mentioned when I have been here before, is a positive story due to less reliance on export story. Global growth overall is still seeing a drag on exports. So the trade story is not going to be supportive for emerging markets. Overall though, I do think for the moment especially the comments from the Fed and the mixed messages that we are getting, we are going to see a delay in rate hike. A lot of people are worried about the eventual rate hike that is going into come in USA, while they are worried about that the effect of a stronger US dollar which will also detriment the emerging markets. So far from what we have seen in the Fed, there have been a number of messages from various Fed officials. However, some of them have mentioned that they see the Fed rate hike being pushed out; some of them have even commented that maybe it is still before the end of this year. We do have a meeting in October. Our team here at JP Morgan Asset Management, we think that the rate hike in October is definitely not happening. December is still looking mixed, the market Futures are pricing this around 30 percent chance but it is starting to lean towards looking at a Fed rate hike being a 2016 story. So for the moment it does look a bit more positive for the emerging market side. Latha: Therefore, what is the view on the Indian markets itself? We have seen about a nine percent recovery from recent lows going only by the Nifty. You think there is more juice left before the year ends? A: I think there might be. We are still seeing hopefully, effects of the government’s efforts to increase ease of business in India. We have the Bihar elections over the next few weeks -- India’s third largest state. So, the way this election will pan out, I know from reading the polls that it does seem very close. It should either way give the government some signals of what to do if they do come out of this state election poorly. It should hopefully give them a bit more shove in the right direction to sort of push forward through on more government plans, government policy reforms. If they do do well, it shows that they have still got support especially amongst the rural population. So, it should show that they are doing and it should hopefully increase market confidence. But overall, I think India is still looking positive for the rest of this year. Sonia: How would you approach the Bihar elections because that is a big sentiment trigger for our own markets? You gave a very positive picture if they won. But what if they lost? A: If they lost, of course, it would show a bit of uncertainty, over what is going to happen. Of course, maybe the support is not as quite as strong as they wanted. If they lose though, I do think it might give the government a bit more impetus to try and push forward with more of their reforms work together with more of their allies and some of the other parties. But however, I do see it being a bit more uncertain on the market confidence side if they do get heavily defeated. Latha: So, you would sell out? A: I still would not sell out. There is still some positive in the fact that the government might still be pushed to rollout some more aggressive measures to try and get the market back on track.