India to start outperforming in 6 months: Credit Suisse

On Indian equities, Parker said the correction in Nifty is attractive and indicative of the economy outperforming in the next six months. 

Below is the transcript of Robert Parker's interview with CNBC-TV18's Latha Venkatesh and Nigel D'Souza.

Latha: What did you make of the Fed's statement, key takeaways for investors and for emerging market investors?

A: The Fed statement is crystal clear which is that interest rates are going to rise but the pace of interest rate increases is going to be very slow and the amount of interest rate increases is going to be very minor.

I think it is reasonable to forecast that the Federal Funds Rate currently 25 basis points, during September or October will be increased to 50 basis points. So, it is reasonable to forecast that this time next year the Fed Funds Rate will be 75 basis points to 1 percent.

As we go into 2017, will we see a Fed Funds Rate moving up to around 2 percent and that is against the background of only a moderate increase in US inflation and is also against the background of a rebound in the US economy. However with US economy probably growing on trend 2.5-3 percent, the probability of the US economy growing back at 4 percent or even 3 percent plus is a low. Now that I think is supportive for markets. I think what is also critical which investors need to focus on is the size of the Federal Reserve's balance sheet. That balance sheet is now USD 4.4 trillion. Pre Lehman Brothers going bust in 2008, their balance sheet was USD 800 billion. So, they have increased it by USD 3.6 trillion. If they hold that balance sheet at current levels, I think it is supportive for global equity markets including emerging markets. If they start to shrink their balance sheet i.e. drain liquidity, then we are going to have another discussion and that obviously would be negative. So, that is the big risk factor for markets.

Latha: Let me just gauge what this will mean for yields and currency and therefore, for emerging market investors. If your reading is that there could be one, may be even two hikes in calendar 2015, where do you see US treasuries in 2015 and more importantly the DXY - the dollar index?

A: I think the US treasury yields will increase. However, we already have a very yield curve. The market is discounting the increase in the Fed Funds Rate and therefore, any sell-off in US treasury yields now is going to be fairly minor.

If one looks at the end of this year a 10-year US treasury yield probably close to 2.5 percent relative to 2.25 percent today. Similar moves in other core government bond markets like Germany and Japan and there if anything the move may be less because we have quantitative easing in Eurozone and Japan which will keep any yield increase constrained.

This is not negative for emerging markets and if you look at investor positions around the world, then they under own emerging markets.

There are some markets where like Brazil, Russia, some of the South East Asian markets where that under ownership are very logical where the markets have sold off for very good economic and corporate reason. There are other markets which are still under owned, but where the economic outlook is improving and one of them obviously is your market.

Nigel: Now that this entire FOMC meet has played out we are factoring in a second half hike coming in from United States, what is the next trigger and how big a overhang is this entire Greece saga that has been playing out? Is it a big overhang, what is the expected outcome that you are expecting?

A: The Greek situation is obviously coming to a head over the next 2 or 3 days. In fact, we have a euro group finance ministers meeting later today and we had a very clear statement from Merkel in the German Parliament earlier.

In terms of what it means for the rest of Europe, there will be some short term volatility. European equity markets sold-off in May and June and that sell-off was against a background of very high valuations at the end of April. So, European equity markets were very vulnerable to profit taking in May and June. They have actually now reached levels where they are starting to look interesting and becoming a buy again. So, having been cautious on European equities in the last two months, I think the last few days one has to come in and increase positions in Europe.

To come back to your question, what are the contagion risks on Europe if Greece defaults and clearly the economic views and the political views on Greece is negative; it is difficult to find any positive outcomes here.

However, the key point is that non-Greek private investors own less than 4 billion Euros of Greek exposure. You only worry about contagion risk when investors have significant exposure as they did from 2007 to 2011. So, the contagion risk is actually going to be fairly minor.

Let us not forget that other economies in Europe like Portugal, Spain, and Ireland and to some extent Italy have all very successfully restructured their economies over the last five years.

So, Europe is in a very different position today than it was five years ago.

Latha: Any view on India? We saw little bit of money being pulled out of Indian stocks and the benchmark lost about 11-12 percent at one point in time. Is this attractive now or you will wait?

A: After this correction that we have seen we have come down on the Sensex from nearly 30000 to just over 27000 in the Indian market, I think 2 or 3 months ago when we discussed this at that time I was rather cautious because of the stretched valuations. I thought too much good news was factored into the market. Now, it is starting to look attractive and consequently, if one looks at the next 6 months, India should now start to outperform again.