Discussing global as well as emerging markets, Arnab Das, Managing Director - Macro Strategy at Trusted Sources, said investors could be disappointed by the Brazil verdict (reappointment of Dilma Rousseff as president), but this may have a positive impact on India.
He expects Brazilian economy to continue to underperform, while feels India may benefit from political stability under Prime Minister Narendra Modi.
He expects US Federal Reserve to be on track to end quantitative easing later this week.
Below is the transcript of Arnab Das’s interview to CNBC-TV18’s Reema Tendulkar and Sonia ShenoyReema: Let me first talk about Brazil as well as the elections which took place which have voted Dilma Rousseff as the new president of Brazil for the second term. How does this change the dynamics of emerging markets, do you think that investors are disappointed on the back of this development and therefore now Brazil is going to be out of favour and it could benefit India in someway?A: Yes I think investors will be disappointed, people are quite concerned that Dilma will continue with meddling and intervening kinds of policies that will represent old labour rather than the new labour that we had under her predecessor Lula da Silva who was moved to more of the centre of the political spectrum, she is moved more to the left. So we are quite concerned that Brazil will continue to underperform as an economy and in the financial markets. Reckon the impact on India will be positive at the margin. India has been benefitting very much from the government of Modi and the improvement in the external perception has been quite strong. I suspect that the way would have worked that had Aécio Neves the opposition candidate won in Brazil then some resources would have been diverted from other countries including India to Brazil. As it is there will be less of that outflow may be rather than a major new inflow into India given everything else is going on in the international sphere.
Sonia: What is the expectation from the Federal Reserve (Fed) later this week?A: I think the Fed is basically on course to end Quantitative Easing (QE) to complete the tapering process. There is a lot of back and forth obviously about the guidance. Our sense is that the Fed has done something quite different than expected by putting the dollar into the FOMC minutes and we have been emphasising that may be the Fed will be more constrained in the pace and extent even if not the timing of the eventual rate hikes in 2015 by the fact that the ECB and the Bank of Japan in particular are still in easing mode. Most of the volatility and turbulence associated with this uncertainty about how fast the Fed will move. We think it is fairly clear that although the US economy is recovering quite strongly relative to its competitors, it is not recovering that strongly relative to its own past although the recovery has improved. Therefore we don’t think that we are going to get a very strong surge in the dollar or a very rapid rate hiking process from the Fed.
Reema: With respect to any rate moves by the Fed do you expect the Fed language to include the word ‘considerable period of time’?A: Yes it probably will stay in as a bit of a comfort blanket for the markets. But of course you will be aware that the term ‘considerable period of time’ has been so diluted as to have become almost devoid of any meaning. Several people have been talking around what considerable period means and the FOMC vice-chairman has suggested that it could range from almost no time at all to as much as a year. So it is really not clear what it means anymore compared to the six months that Janet Yellen had originally suggested sometime ago. So we think it will stay in, it will help to mitigate the pressure in the market but it wont really constrain the Fed it moving more rapidly if it needs to. We think it is really data dependent and it is really dependent on the dollar and the impact on the financial conditions and behaviour of the economy.
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