India to outperform on rupee, local demand: Macquarie

Latha: How much more of this sell-off will we see? After all it is just one Chinese number coming after a day when the IMF said, it is upgrading global growth that one Chinese number causing so much of a heart burn?

A: A: Chinese number has a big impact but it is also a combination of factors in the emerging market. A big impact has been the decision by Argentina to devalue the peso and that currency is now down 25 percent since November of last year. What is happening effectively is that a perception is growing in the market that the tide is approaching emerging markets. Ironically, the reason the tide is coming in emerging markets is developed markets. The complexity of that now is it is not going to be possible to retrieve the fixed income in emerging markets because of the opportunity across those capital growth in the developed world.

Sonia: So far India has not gotten singled out for punishment but within this entire emerging market sell off what could the quantum of damage be you think for both Indian equities as well as for the rupee that has so far not seen such a big sell-off?

A: The rupee obviously realigned towards the end of last year and if you look at what it is trading now at that 62-62.50 against the US dollar, if it breaks 65/USD another 3.5 percent depreciation which I suspect would be at the top end of what you would see in that regard. I suspect the RBI is going to sit tight on rates given the December inflation outcomes that we saw. That is good, in time of crisis or instability it is probably better to leave rates stable and steady.

I think on the stock side, as I said, it is not a case where investors have the option of going back to 60/USD, so we are going to be looking at the fancied equities in Indian markets.

Latha: So what is your sense, will India be a relative outperformer because of the currency?

A: My suspicion is it probably will be because of the currency and because of the very strong and robust domestic demand underpinning that is coming through in the Indian economy. So we don’t have that kind of transmission effect to large financial or strong financial imbalances that we have in the case of Argentina or Indonesia, in the foreign land there as well. So I think that is going to add some stability and if we get stability in terms of interest rate policy in the near-term from the Reserve Bank of India (RBI), I think that also will help.