India safer than most; Fed will wait till Dec: AMP Capital

India is seen as a source of stability and decent growth in a world that is ridden with problems, says Shane Oliver, Head-Investment Strategy & Chief Economist at Amp Capital Investors. In an interview, he said gradual easing of monetary policy by the Reserve Bank and a reasonable economic growth are key reason why Indian share market has performed and it is relatively safe to invest in Indian equities.Rich valuations not withstanding, Oliver says earnings outlook appear stronger than most other emerging countries making it just to have PE mulitple higher than most emerging market economies.Talking about Fed rate hike talks in September, Oliver says he believes it will get pushed to December.  "Any impact on financial markets might be short-lived because it is not going to be a 1994 when one rate hike followed another one in fairly quick succession."Below is the transcript of Shane Oliver’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Latha: If you looked from March or April to date, the Indian markets have been relative outperformers. The other emerging markets, especially commodity markets and China have been rank underperformers. Is there more legs to go for the India rally. Is there still that much preference for India? A: I guess in the great scheme of things, India has been seen as a source of stability and decent growth. You have seen much of the emerging world underperforming, you can see it in those business conditions purchasing managers index (PMI), many of them are well below 50. And of course, those problems are quite intense in places like Brazil and of course in China, the share market had done quite well in China and then of course it has gone through a big correction. Maybe it went up too far too fast. So, in the great scheme of things, India is seen as being a relatively safe place to invest, relatively calm. The Central Bank has been easing monetary policy a bit rather gradually and economic growth is being quite reasonable. So, can understand why the Indian share market has performed. The only constraint in all of that and it is the one that is usually mentioned when you talk about Indian shares is that the share market is still relatively richly valued. The price to earnings (P/E) multiple or forward P/Es is around 16.5-17 times which is quite high by emerging country standards. Flipside, I guess, is that the earnings outlook is stronger than most other emerging countries, maybe that P/E is justified.Sonia: This morning, or rather last evening, the Atlanta Fed , Dennis Lockhart said that he supports a rate hike in the month of September itself and he said that he would take a major weakness in the data to not move in the month of September. Do you think that the first Fed rate hike is coming now in the next couple of months or do you think that because the economic data in the US has been fairly weak, it could get pushed to the month of December? A: I think there is still a chance it can get pushed out a little bit. The Fed has quite clearly indicated a desire to start raising interest rates consistent with the fact that the unemployment rate has fallen to quite low levels, but wages growth is showing some signs of picking up and the Fed thinks well, we have got US economy back into better shape, we can take it off life-support, we start it with removing quantitative easing, the cycle taper period a of course it is down to the question of when we raise interest rates. So, the inclination is to raise rates later this year. I know Dennis Lockhart is saying September, there is a few others saying it is September, but you will probably find a few others saying that the Fed will wait till December. And even though the labour market has improved quite significantly, there is still a lack of wages growth in US, that figure that came out on Friday in US was pretty low at around two percent year-on-year (Y-o-Y) wages growth. So, that is suggests to me that it is almost 50-50 as to whether it is September or December. When it does come though, if it does come in September, the message will be quite clear, `Yes, we have raised interest rates. Yes, the economy is stronger.' But do not expect a rapid series of rate hikes from here on. So, any impact on financial markets might be short-lived because it is not going to be a 1994 for example, where one rate hike followed another one in fairly quick succession. Latha: That said, we are just about 41 days from the next Federal Open Market Committee (FOMC) meeting on September 16. That is what, not even six weeks? How do you think emerging markets will shape up in the run up to it? Would you want to take out some money and how would you react as an India investor? A: In a broad principle, you can argue that this will be the, when it occurs, this will be the most anticipated Fed rate hike after an easing cycle ever. I mean, we have been talking about it for a long time now. it was meant to be in the first half of the year and it gets pushed out and it is getting pushed. It was going to be June and then it was pushed out further and further. So, I do not think it is going to have anything like the impact that the taper-tantrum had in the middle of 2013. When that came, it was something of a shock to the markets. That said, there are certain emerging countries which are somewhat vulnerable here – parts of Latin America are vulnerable in this environment. And I would be a bit cautious at this stage about investing in there in particular with the Fed rate hike around the corner. Against that though, there are other parts of the emerging world and I would put India in that count that look reasonably solid. The Indian economy is seeing a gradual reform, agenda through, in fact, one of the few emerging countries seeing reforms come through albeit some might say it is gradual, but still happening. And on top of that, the Central Bank seems to have done a good job getting inflation back under control and growth in India looks reasonably healthy. So, I would not say huge negative ramifications for Indian share markets, so in other words I would not be taking money out of the Indian share market in anticipation of that Fed rate hike, but I will be cautious on South America. Latha: What about the India-China debate yet again? You said that the volatility did take away some money from China, but can a business case for China rise yet again before the year is out and will that take money away from India? A: It might, but I think investors can argue that the case for Indian shares is somewhat different than the case for Chinese shares. Indian share market is expensive, that is the big negative against it, but it is actually recording stronger economic growth than China that is showing up in earnings growth. You have got a Central Bank which is probably on hold for a while. The Reserve Bank of India is probably on hold, so that is not a positive, or negative, that is more of a neutral factor. But, you do not have the instability issues that hang around China. On the other side, the Chinese share market is somewhat cheaper, particularly the largecaps and that will benefit from monetary easing. So, it is a hard choice between these two markets. But, I would certainly favour those two over the rest of the emerging world, without answering directly that you post.