Global money shifting out of India to China: Arnab Das

In China, the government has been making good progress with reforms, he says. While growth may be lackluster, the Chinese central bank has enough headroom to deliver and has been easing more aggressively than what people had anticipated, he says.

Below is the transcript of Arnab Das’ interview with Latha Venkatesh and Anuj Singhal on CNBC-TV18. 

Latha: How should the market and the global financial markets prepare for the Federal Open Market Committee (FOMC) statement? Will it be an also ran since everyone expects it in September?

A: It always has the potential to throw some googlies. You are right that most people expect it to delay to September and that is largely being priced into the markets. So that is probably going to be validated, but I don’t think that the Fed is going to so far as to completely constrain it having exited from the forward guidance that have become data dependent. It is going to continue to be data-dependent and in some sense the knocks of good news in the economy is good news for risky asset classes. It probably will continue to be the case, but as the payback for some of the weakness in US growth and some of the amelioration of the dollar strength comes through, we may get another round of moderate dollar strengthening as we head towards September. So the markets are going to remain in this kind of data-dependent mode and therefore will be somewhat more volatile and less trending than in previous such episodes.

Anuj: The other issue that we want to discuss is what is happening with Greece. We have been hearing the term Grexit for some time now and now people are talking about Grexhaustion. There is a bit of an exhaustion about that issue itself. How do you think that is going to impact the market whichever way that plays out? 

A: We are heading towards or maybe even experiencing a bit or relief rally because it seems like the signals from Athens are becoming at least somewhat more conciliatory because it would appear that the firebrand Finance Minister has been sidelined not from cabinet or from Ministry of Finance itself but at least from a negotiating process. 

So, the mechanism here of course is that the Greek people really want an exit from the Eurozone and on the European side the feeling is that the strength of their bargaining position has improved vis-à-vis Greece which has become much less systemic, much less risky for the rest of the Eurozone and the rest of the world because of the fire breaks that Eurozone has instituted. 

So, it looks like we are heading towards some kind of short term resolution. I don’t think it means the problem won’t go away but there will be a sigh of relief and a bit more of relief rally perhaps when this does materialize and they are reckoning a stave it off beyond let us say the current quarter or the next quarter.

Latha: We have seen about eight to nine days of selling now, consecutive days of selling and that has taken the Nifty down by over 600 points, some technical levels broken. We have also noticed a lot of fall in selling. Actually month to date (MTD) it is a sale of about USD 1.2 billion. Any reason for this exhaustion, and at what level are you a buyer? 

A: Well the underlying issue is that there is a bit of portfolio shift going on within emerging Asia let us say away from India towards China. China has been performing very well and India has sort of run out of steam and is now giving back some of the heady gains of last year and this reflects the performance of both governments on the reform front to some degree. So India had created enormous expectations of higher growth, better reforms, better governance and so on and those things are still very much on the table but the tax terrorism was a bit of an issue which the government has moved to try and ameliorate, still the reality is that growth is disappointing, earnings are disappointing and the pick up that you might have expected in general whether it is activity or performance in the corporate sector or generally as a result of the windfall in oil prices. It is there, but it may be less than had been anticipated or hoped for. 

Whereas in China the government is moving forward on the reform front, growth is very lackluster but the central bank has a lot of room to maneuver and is easing perhaps more aggressively than people had anticipated. So, within emerging markets and within Asia there is a bit of rebalancing going on which explains the foreigners selling. We don’t comment on specific levels of buying but what investors, what the market will look for is a more pronounced shift both in performance and perhaps more importantly in policy and monetary policy can help here but really it will be the politics of reform which confirms that the promise of the government and the election is starting to be delivered in a more aggressive way then we might see a bit of gain again but I don’t think it is going to be as pronounced as in China.