India appeals now; adopt short-term approach: Roubini

Roubini Global Economics feels that the Indian market looks conducive in the near-term. Arnab Das, its managing director of market research and strategy feels that flows might continue to come into the Indian market for the short-term. Delay of tapering programme by Fed, the debt crisis and RBI governor Raghuram Rajan effectively making case for the country at the IMF meet have benefitted the environment, he tells CNBC-TV18.

Going forward into the elections, reforms will take time to be implemented and things will be aimed at financing decisions, he says. So, the strategy would be to adopt a short-term approach, Das adds. Also read: Coal block auction, food stock offload soon: Montek Singh Below is the edited transcript of his interview to CNBC-TV18. Q: We have seen a decent amount of flows coming into Indian markets despite some wobbly fundamentals. Do you think these flows will continue? A: I think in the short-term yes. There are a bunch of different things going on as usual. Prospects of tapering have been delayed. The threat of a default in the US has been staved off and probably reduced. The fiscal crisis further delays the onset of tapering by the Fed, at least that seems to be the consensus in the market. Raghuram Rajan and others were very effective in making their case for their countries at the IMF meetings over the last weekend. All of these things have combined to make the environment for countries with large deficits somewhat more conducive at least in the near future. Q: Would you dip in even at current levels into the Indian markets? A: A trade with short-term kind of approach may make some sense. The underlying issue though is that nothing has been fundamentally resolved whether it is in a political process and reform process in India. It is going to take several more months at least pending the election. Measures can be taken before that and no doubt will be to help with macroeconomic management and to manage if there are more shocks, but probably nothing major is going to be done on structural front. Things more aimed at the financing of the deficit might be done In the wider world, German elections has occurred, but the government is yet to be formed. All of the things that Europe needs to do to resolve its issues are still on hold for the time being and probably will progress very slowly. In case of the US, we will be revisiting budgetary dilemma probably won’t be as bad and even if it is, people are starting to sense that the Fed will taper even later if things go down again. If there is breaching of the debt ceiling in the future negotiations, the Fed may well end up buying bonds from the market at par to provide liquidity in the event of another shutdown and or succession of activity in the treasury market. Q: Would this year be a year for the European equities because we have the euro at 1.37 against the dollar, we have the DAX, which is at a lifetime high. You did allude to underlying problems in Europe, but overall are more institutional investors possibly more confident about Europe? A: Another message from IMF’s annual meetings last weekend was that the market participants, who were there kind of in unison, were favourably inclined towards Europe and particularly towards the periphery of Europe. The economies throughout the periphery are bouncing off the bottom after a depression like situation. The persistence of QE by the Fed and the removal or at least, the delaying of the tail risk of the US default or sudden balance of the US budget, all of that clears the way all risky assets to do reasonably well. Its not just India; its emerging markets, euro zone periphery, its US and global equities, its pretty much going in many directions if not every direction out of risk free assets. Against that, we still have issues that emerging markets as a whole including China and led by India are slowing down significantly. Many of them, major ones have already more or less stalled whether it’s Brazil, Russia, Turkey under pressure as well in terms of the economy, South Africa. So the Brazil, Russia, India, China (BRIC), all of them not doing as well as they had been and maybe that has got more structural element with them than people would have initially thought. At the same time the developed world is doing a lot better than people had fear. So, that differential is narrowing meanwhile the rising tide of liquidity is lifting all the boats.