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Last Updated : Jan 23, 2015 11:53 AM IST | Source: CNBC-TV18

Indian macros, not ECB QE to draw flows: Seth Freeman

Euro is likely to see further pressure on back of dollar strengthening and negative interest rates in Germany, says Seth Freeman of EM Capital Management.

Commenting on the ECB quantitative easing (QE), Seth Freeman of EM Capital Management said unlike the US quantitative easing this is more complicated because it involves many countries and each of their  Central Banks would be forced to take a piece of this, so the outcome is likely to be different.

According to him the euro too is likely to see further pressure on back of dollar strengthening and negative interest rates in Germany.

Talking about the impact of ECB QE on India, he said the money coming into India is more because of the improving macroeconomic situations and corporate earnings, as well as reduction in interest rates as opposed to additional liquidity.

However, Indian corporations that import from Europe could see this QE helping their margins.

Below is the transcript of Seth Freeman's interview with Nigel D'Souza and Reema Tendulkar on CNBC-TV18.

Nigel: We always knew the quantum was around 1.1 billion Euros, now in fact the duration has been reduced and it has been up to around 60 billion odd, will it work the way it worked in United States and what exactly does this mean?

A: It is a little more complicated just because we have so many countries involved and each of their Central Banks are being forced to take a piece of this. So it makes the outcome a little bit different and when it is one country like the United States and also the fact that so much is still dollar based, the increase reflects the fact that the board, the commission wanted to reduce the length of time that they were going to buy bonds.

Reema: The point is taken that it is quite complicated considering that eurozone is Union of 19 countries with different risk abilities but what impact will it have on the euro, we have already seen it slipped to a 11-year low, has it priced in the implications of QE of 1.1 trillion euros or can it slip lower?

A: It could slip lower depending on the impact of the stimulus. If the stimulus is now working too well, that could drive down the value and Germany for example has had literally a negative interest rate. So that puts pressure of course on the euro and at the same time the dollar is continuing to strengthen.

Nigel: What about Indian currency, how will that behave and also what about our markets, do you expect it to react very well or do you think we have priced in most of this?

A: Let me answer the second question first. I think that in terms of more money coming into India, what you are going to see is money coming in because of the macroeconomic situation in India improving and actual corporate earnings improving. So I would say it is more on merit as oppose to additional liquidity.

On the other hand to the extent that there are Indian corporations that import from Europe, this is probably good for their margins.

Also, we just saw a rate reduction in India and that of course lowers the premium on investing in India bonds versus other countries.

Reema: While I know a lot will depend on whether this quantitative easing (QE) programme by the European Central Bank (ECB) is working or no, but we will not know that perhaps in the next one-two months. For the next three months what will be your best guess, how the European equities, US equities will perform?

A: I think that we are going to continue to see positive sentiment and I would expect equities to continue to rise mainly because of sentiment, we will know more in the next few weeks once we see corporate earnings.

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First Published on Jan 23, 2015 10:49 am
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