The US Federal Reserve may take one interest rate hike in 2015, says Vivek Misra of Societe Generale. He does not see any move on the rate front this time around. According to him, the Fed statement will be important.
Post the Fed rate hike, he expects outflow from the bond market to be higher than from equity market.
He expects the global market volatility to continue for some more time. He does not expect risk assets to do well in the next quarter. " Emerging markets typically tend not to do well in risk-off phases. But EMs in Asia are relatively more resilient," he told CNBC-TV18. However, he adds that the Indian market may remain volatile but the downside risk is limited.
On the ongoing Greek crisis, Misra says it is unlikely to have any major impact on global markets.
Below is the verbatim transcript of Vivek Misra's interview with Nigel D'Souza and Ekta Batra on CNBC-TV18.
Ekta: What is your expectation from the Fed this evening and what would that mean for Indian equities?
A: Our expectation is that there will be no move as far as interest rates are concerned from the Federal Reserve. The important thing to watch out for would be their statement. We believe that there would probably be no indication as to whether the meeting in September or December is going to result in a rate hike. Our house view is that the first move is likely to happen in September and there would be one move this year.
As far as the impact on global markets is concerned, the volatility that we have seen over the past few weeks is likely to continue over the summer and that risk assets in general will not do very well for about a quarter or so.
Nigel: Let us talk about Greece, Greece has been a big overhang over the last few months but in the last couple of weeks in fact it has become even a bigger overhang, what do you think it means for emerging markets like India and some part of South East Asia as well?
A: The direct impact from Greece is relatively limited. The impact from Greece primarily comes through from the risk-off phase. During the risk-off phase emerging markets in general don’t tend to do well. Having said that, the emerging markets in Asia, are likely to be more resilient this time than in some of the more previous episodes of their risk-off phases.
Due to various reasons like the fact that the emerging markets in Asia are cheap in terms of valuations, the external situation in most of the economies remains relatively robust. So, I don’t expect a big impact from this. Also, the markets are a bit more prepared for an extreme event this time around than they were in the past.
Ekta: If in case there is something decisive in terms of a timeline that comes out from the FOMC and this is a hypothetical situation, say they say that the deduction is that September is when we could see the first move from the Fed. Do you think post that there could be a complete outflow of flows from the debt market in India especially and that could create volatility in the rupee as well and maybe we could see the rupee depreciate to levels from where it currently is?
A: Whether they do give a definitive timeline or they don’t, I think the volatility that we have seen and the outflows from the market will continue. The bond markpet is likely to see higher outflows than the equity markets. No matter which of these two markets the outflow is from, the rupee is likely to remain volatile and depreciate a bit more in the near future. So, the US rate hike is going to be an event that is not going good for risky assets whether it be the bond market or the equity market.
What does tend to happen is that the market tends to bottom out before the actual rate hike and within about six months post that event you do tend to see a rebound. I do expect that within six months after the rate hike, you are going to see market in general at level higher than they are right now. As far as the equity market is concerned, while I do expect volatility to continue, we are pretty close to a bottom and we are not a million miles away. The downside I think is relatively limited.
Nigel: Could you give us some more numbers in terms of where is the downside limited for the Nifty, you believe 7,900 Sensex 26,000 – what are you looking at because we have seen a big correction from the top? Do you believe we will stabilise maybe a 3-4 percent correction from current levels and then we will stabilise?
A: What I expect is that the bottom should be about 26,000. So, it is not too far away from the current levels. Having said that, what you are going to see is a lot of rallies and declines. So, it is going to be extremely volatile. I don’t think the market would essentially stabilise. You are going to see some sharp rallies and some sharp declines; that is my expectation.
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