India insulated from Brexit but IT, auto may get hit: Geosphere

With only hours left for the EU referendum voting results to be out, global markets, particularly emerging markets in their early trade, are in a severe turmoil.Speaking to CNBC-TV18, Arvind Sanger founded Geosphere Capital Management said the political risks emerging from the EU will spill over to parts of developed markets. This could be mean a buying opportunity for investors in the Indian equity markets post the first 2 percent of fall, he said.Though India is relatively insulated from the uncertainty coming out of the global economic conditions, Sanger believes currency depreciation will impact IT and auto industry.Below is the verbatim transcript of Arvind Sanger’s interview with CNBC-TV18's Latha Venkatesh, Reema Tendulkar and Anuj Singhal..Anuj: This looks like Brexit is prevailing. Equity investors can keep hoping but the data is indicating that it is going to be Brexit. What kind of cuts should stock market be prepared for?A: S&P Futures are already down 2.5 percent and I guess other Asian markets are falling fast. My concern with Brexit has always been that if Brexit passes, the polls were leading the other way, but if Brexit passes it suggests that there is a lot of political risks in a lot of parts of developed markets. So, you have an election going on in Spain this weekend, you have other things that could happen. The US election suddenly it looks like it is Trump's to lose not Hilary's to win if voters align so much to the posters and they are that much in favour of anti-establishment, anti-regression. So, with all those risks my sense is markets could easily fall by five percent over the next couple of days as people fully digest the implications of Brexit directly for Britain but indirectly for other elections in the Europe and the US and that is the initial risk off that could happen.Latha: Is it really necessary for us to believe that if UK moves out the European Union (EU) will be loser confederation, they could even get tighter. The political reaction to these events could always be the other way that they actually tighten the bonds around the remaining 18 of them and UK in any case was always an outsider. So, therefore should one expect too much of economic mayhem and definitely how much more of financial mayhem?A: Let me give you one example. In Holland the centre left and centre right parties are polling lower than Geert Wilders' anti-immigrant right wing party. So, Holland is one which has always been close to the UK in terms of its political economic philosophy and it has a strong anti-immigrant push. There was a referendum in Holland a couple of months ago about something related to Ukraine. So, the risks are that other anti-establishment parties in other parts of Europe can embolden by this and that causes the unraveling of the Eurozone. Now, clearly Germany and France are going to move to try to rush to tighten the bonds but the centrifugal tendencies of other European countries like Denmark and Netherlands could be as strong as the tendency which will try to cause a tighter cohesion amongst the Eurozone.So, I am not sure that political risk is kind of all go in one direction. It is going to create a lot of political uncertainty and markets hate uncertainty and I am not sure that we can now count on central bankers to sprinkle holy water by cutting rates and that will fix everything. That has been the solution to every problem since the financial crisis. I am not sure at this point the things that are going on politically are fixable by another cut in rates. So, that is where the real challenge for markets lies. They have gotten used to central bankers rushing in and soothing over on problems and I am not sure this one can be fixed that way.Reema: You said that the initial reaction will be a five percent downfall if there is a Brexit but given the political risk do you think that the market is likely to be underperformers vis-à-vis the other asset classes at least in the medium term, should we stay out of the equities just say for six months or till the end of the year?A: It is going to make equity markets very tough place to make money over the next few months. Obviously there is going to be huge volatility. There is going to be trading opportunities but from a fundamental standpoint there is going to be risk off and that risk off is going to sustain for a while because people don't know where this is going because Trump's platform is really about anti-immigration and trade wall and Brexit is about immigration and some change on the trade order.So, we are entering an era where we don't know which way trade is going, we don't know which way the economic world order is going and there is enough risk here that there is no easy answer. For equity analysis you need some stable framework of economic outlook and the stable framework of economic outlook frankly to me looks rather unstable unless we get a very sharp pullback more like 10 percent. I won't be rushing into the markets right now.For full interview, watch accompanying video...