Emerging markets as a whole is facing some challenges, but India most definitely is outperforming during tougher times, says Arnab Das, managing director, macro-strategy, Trusted Sources. India will also benefit from falling commodity prices, he says, while adding that the country is a lower beta market as compared to the world.
But for India to continue to outperform, the government needs to find a way to break the policy logjam. He says GST will be a game changer for the Indian market.
He also adds that the country is in a much better position to tackle US Federal Reserve rate hike.
Below is the verbatim transcript of Arnab Das's interview with Anuj Singhal and Ekta Batra on CNBC-TV18
Anuj: First a word on the emerging market overall scenario. What kind of risk reward ratio is there right now for a market like India? Do you think it is a good buy even at current levels or would you be a bit wary of the kind of rally that we have seen especially in the broader market?
A: The general situation is that we have some challenges for emerging markets as a whole. The Fed is increasingly likely to start a rate increasing process in September and for the commodity producing emerging markets, the challenges in China are becoming more evident and the slowdown is feeding through together with a strong dollar. India and a few other countries in emerging markets should be beneficiaries of that falling commodity price and so India is becoming a more beta market compared to 2013 when the taper tantrum hit. Now India is outperforming in general when times are tougher.
So, that is the way most foreign investors are going to have to start looking at it that the world has changed quite a bit. Emerging markets have changed quite a bit as a group and within emerging markets there has been a great deal of change in some countries and not enough change in others, in some places as well the change has been negative. So, India holds a lot of promise, but in order to fully realise that promise, we go back to the old song, the government must do things to reform and liberalise the economy to clean up the financial system to clear the way for more credit led investment process and if all of those things start to happen, if the goods and services tax (GST) finally falls into place and so on, India will be one of the most attractive markets.
But for now, because there has been such a large external adjustment in the balance of payments, it looks like a safer place than it did in the past.
Ekta: Just based on that point, are funds being rerouted from emerging markets such as Indonesia and the like of Mexico, Brazil into India simply because of what you mentioned; stability in the Indian rupee as well as the fact that we are benefitting from lower commodity prices as opposed to those economies?
A: I think that that is one of the things that is going on. The other thing that is going on is that funds had been rerouted from India to China during the Chinese stock market boom of 2014-2015 after the very strong rally the Modi-hope rally in India. And all of those things are starting to at least partially and at least temporarily reversed because the world is becoming more and more challenging and like I said, the challenges in India are somewhat less than they might have appeared in 2013 or might be less than some other countries competing for capital now in 2015.
Ekta: The US jobs data that comes out on Friday, what is your estimate and how important is it?
A: We do not forecast the US unfortunately, but I would say it is quite important. The basic message is that the US economy continues to recover even though the overall level of the recovery and the speed of the recovery is not all that strong. I think we are looking at sub-two percent growth mathematically for the year as a whole. The bottom-line is the labour market is tightening, the economy is recovering, credit is rising and so, Fed funds rates will also rise.
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