India not to be affected much by Fed taper: Deutsche

The unexpectedly strong US jobs data released Friday has reignited fears that the Federal Reserve could begin trimming the monetary stimulus shortly. There 204,000 job additions compared with expectations of around 125,000, showing resilience of the economy despite a partial government shutdown.

Peter Hooper, MD and chief economist, Deutsche Bank believes if the US data continues to be good, Fed is likely to taper earlier than expected.
Speaking to CNBC-TV18, Hooper says that Fed tapering may initially affect the Indian market a bit negatively, but strengthening of the US economy will finally end the quantitative easing, which in itself will be a positive. Below is the verbatim transcript of Peter Hooper’s interview on CNBC-TV18 Q: How will you interpret the jobs data, will you significantly alter your own tapering expectations in terms of timetable?
A: I think the jobs numbers has certainly put the taper back, very much on table. The Fed again held off in October because the labour market looked weaker to them, these numbers especially with the revisions to the prior months, for August and September on top of the good October number, put things in a different light and if we get another decent number for November on December 6, it is going to make it difficult for the Fed. Q: You see a period of dollar strength, the dollar index, one way of tracking the dollar strength is at two month highs. Do you expect more strength there?
A: As the Fed’s process of beginning this exit continues there is going to be index of balance strength but the Fed will do its best when it does taper; it will be holding up raising rates for quite sometime. As we go into next year and the economy, numbers continue to do well, we see the fiscal drag that has been holding things back coming off so as we get some positive surprises on the US growth number of picking up going in Q1-Q2, that is going to be supportive for the tapering. Q: How does that impact emerging markets like India because a major chunk of the upmove that we have seen this year has come, courtesy flows and now there are some fears surmounting that?
A: As dollar gains strength, this will make things little difficult and at the same time the strong US economy will be driving this market, its going to be good for the rest of the global economy and that will be helpful for India as well so, a bit of a mixed picture.
The good news is that the US should continue to show recovery. The Fed will not be moving unless things look good there. Q: Do you mean the Indian market will not fall much even if taper takes place?
A: The initial reaction is going to be negative, but it should become clear over the time that the strengthening of the US economy is going to be driving Fed tapering and finally ending quantitative easing in itself will be a positive.