Growth woes overdone; see 1-2% daily swings in US mkt: NAB

For him, the Indian market has shown a lot of resilience. According to him, a lot of global investors have turned bullish on India because India is a net importer of oil and at current prices, it is good news in terms of inflation as well as current account deficit.

Below is the verbatim transcript of Nick Parsons' interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18

Latha: What is the sense you are getting, are we going to get a lot more of the risk aversion that we have been seeing over the past three-four weeks?

A: We are going to see a lot more continuation of volatility, 1-2 percent daily swings across asset classes are going to be the feature of the market for some little time to come. I made the crack to someone yesterday that Wednesday was a very busy month because we saw some monthly trading ranges, for example in the US the 10-year treasuries traded in the range of 34 bps, if we look in the stock market in a high to low range in the Dow Jones was 430 points. I think we are going to see some very wide trading ranges until and it will take some time to come to return across asset classes.

Sonia: Is there a big cause of concern because of what is happening with the data across the US market. We got a string of bad data or would you be positive thinking that the Fed might post postpone its rate hike because the data continues to be weak?

A: I think some of the concerns around global growth is somewhat overdone. Yes, it is true and we all understand that China might post its slowest growth in 15 years but people are failing to look at the absolute levels of gross domestic product (GDP) globally and they are focusing still on the growth rate, for example if China grows 7 percent which is at the low end of the forecast range, 7 percent of USD 9 trillion economy is still over USD 600 billion of extra GDP and even growing at its slowest pace in 15 years, China will create a South Korea every 15 months. I think it is important not to focus just on the rates of change but also to look at levels. When we do begin to look at the level, we can take some comfort. The world GDP last year, if you add them up, every country in the world was USD 73 trillion and the IMF projects even in its new numbers that will be USD 92 trillion by 2017. So we have got an extra USD 19 trillion of GDP coming through over the next four years and ultimately it’s that that gives some hope and encouragement.

Latha: Are you getting a sense that we are close to the bottom in some markets?

A: It is difficult to call bottoms in advance and that’s absolutely for sure. One thing that is worth pointing out is the stretched levels of valuation because when markets are priced for perfection and arguably that’s where the S&P 500 was when it was trading over 2,000. When markets are priced for perfection and by that time in terms of the outlook for earnings, the outlook for monetary policy and the outlook for volatility when, they are priced for perfection then there is little scope to withstand the disappointment. If those various concerns begin to ease then obviously valuations are slightly more attractive than they were four weeks ago. If valuations can look a bit more attractive, if volatility itself subsides and if the outlook of the monetary policy is lesser the threat then we will see some stability return but the scars of the last four weeks and the deep scars of the last four days are going to linger long in investors’ mind.

Sonia: What is the basic trend that you expect to see from hereon especially in markets like India which have already gained so much?

A: The word your colleague used was ‘resilience’ when describing Indian markets and that still is a feature. What we are seeing is some differentiation and one of the reasons global investors are now positive on India is of course you are net importer of oil. When oil moves from USD 115 per bbl to USD 80 per bbl then a country which imports 100 percent of its oil needs is a net beneficiary. So, it is good in terms of the inflation outlook, its good in terms of current account outlook and essentially it is the same economic impact as a tax cut. So, investors are looking at the Indian market in particular in the light of the fall in the oil price and concluding that on a relative basis it is going to be one of the winners.