Global volatility notwithstanding, India has been a relative outperformer. But if Greece exits the Eurozone, it will spark a sell-off trade, says Hans Goetti, Head of Investment-Asia, Banque Internationale À Luxembourg. Though the impact of a Greek exit will be largely sentimental as there is no direct link between Indian and European economies, he adds.
Below is the verbatim transcript of Hans Goetti's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Nigel: We didn't get a resolution coming over the weekend, but what is your sense. Do you believe in the next couple of days Greece Parliament will accept those proposals that are put forward to them or are you factoring in now an exit of Greece from the Eurozone?
A: Everything is in the balance. It's a 50-50 chance for that. Tsipras of course with the referendum gets the political cover to strike a deal even if it's adverse condition but he has opposition within his own party, so that's not a done deal that they would pass it and the other thing of course are the Europeans, they have their own issues. I think they really want to see something by Greece now; they want to see action before they come up with some proposals.
Reema: What should we expect in Wednesday's meeting?
A: It is very hard to say. I think at the end of the day probably there will be some kind of deal because we have to remember one thing the Eurozone is a political construct and if it wasn't, Greece would have been out a long time ago. There is still a political will to keep them in but it depends on at what cost and how can the Germans for instance sell a deal to their own people, to their own electorate because in Germany there is a huge opposition among the population for further bailout. They think enough is enough. So that's something they have to balance and that's why Germany is following a pretty tough line here.
Nigel: What about emerging market like India? We have come into Monday expecting some kind of a selloff but India has been a relative outperformer. So if Greece exits, do you think an emerging market like India will have any kind of negative impact or it will be relatively protected in comparison to the rest of the emerging market bunch at least?
A: I would think the market right now -- we look at 50 percent chance of Greek exit which means if it actually happens there could be a negative fallout even from these levels which means we will have risk off trade and in a risk off trade you have emerging markets getting hit obviously and that would include India, of course it's more of a sentiment issue, it's not a direct link between Indian and European economy but it is more a sentiment issue when you have a risk off trade. I think that's the only thing, other than that we see little connect between the two.
Reema: What about euro, how would you pencil it from here on?
A: It is somewhere in no man's land now. If the stock really breaks down and we were facing Grexit then of course the euro could selloff at least initially. It would also depend on what the terms are. Whether there will be a negotiated exit, whether there would still be support coming in from the European Central Bank (ECB) to support the banks, it is pretty much up in the air. On the other hand if you have a deal then the euro would rally a bit from here.
Nigel: Are you factoring in an interest rate hike coming out of the Fed by the end of this September or December or do you think what is going on in Greece, what is going on in China will make the Fed Chair think again?
A: I would think so. Usually the Fed looks at the domestic economy first and foremost but in this environment they cannot ignore the situation in the Eurozone and probably even China. So that is definitely a factor that weighs on their decision and we think if there is no hike in September then there will probably be no hike in December either because we think an interest rate hike will be in a meeting where there will a press conference afterwards and that's the case in September. If it is not this year then it will be in March 2016, meeting with the press conference, again this is not a forecast, just a possibility that if it doesn't come in September then maybe six months down the road.
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