Prefer India over China; rupee reason for cheer: Parsons

Sonia: It has been a good run for most global markets after the weak US data that came in which indicates that perhaps the Fed will not hike rates very soon. What is your own judgment of how to approach global equities now and Europe in particular?

A: The conundrum for equities is that earnings growth in the US is beginning to tail off impacted by the strong dollar and yet the timing of the first Fed rate hike is being pushed ever further into the future.

Immediately prior to Friday’s numbers, whatever the Fed was saying the markets was pricing the first hike in November of this year. However within an hour of those payroll figures last Friday it had pushed that back to the last week in February 2016. So, we have got on one side the fact or the likelihood that we are not going to see a rate hike this year matched by some disappointment in corporate earnings and I think what it does mean is that the big winner is probably volatility. We are going to see some bigger daily swings in stock markets than we have been used to in the first part of this year.

Anuj: The bigger question is for how long can bad news be good news for the markets in terms of easy liquidity. At what point will the market say that things are not looking good and may be it is time to just correct a bit and take a step back?

A: Bad news is good news until it isn’t. Then when it isn’t because we cannot seriously with any confidence predict in advance when that is going to be. However we will all collectively wake up one day and realise that the bad news stopped driving it higher. It is at that point I would suggest that rather than trying to anticipate when it is going to be which is literally impossible, is to be swift to react to the realisation that it has actually happened. I don’t think we are at that point yet but it is really a question of being swift to react to what appears to be a change in circumstances once they have occurred rather than trying to anticipate it.

Sonia: So let’s talk about real good news then. In our own markets we had the RBI policy today, although the RBI did not cut rates but the governor did indicate that inflation is softening and in fact he has a four percent target as well in the next couple of years, what is you own view of the macros in the Indian markets and do you think India could deliver as good a return in the equity markets as we saw in 2014?

A: What I would say about India is that viewed from a distance the picture appears to have got a little bit better over the last week or ten days.

March was a poor month and it was not just that the Indian markets fell—Sensex remembering we were what 29,500 at the start of the month and lost 2,000 points by the end of March. It was not just that the market fell; no one likes to see markets fall as an investor but it was that they were falling as other markets in the region were doing well.

China was making new highs, South Korea was holding in and really when we tend to look at markets in the Emerging Markets (EM) in the Asia-Pacific time zone is those three that we really look at most closely and the concern was not just that they were falling but India seemed to be underperforming those other markets.

We can take some heart from the fact that it has over the last ten days or so begun to bounce back and even if not independently that the indices are moving in the right direction but the other thing that I do like is the stability of the currency because as long as we have been on a 62 handle for the rupee against the dollar now for every one of the last 20 or 21 trading days and that stability allied with a relatively high yield is offering overseas investments the sort overseas investors the kind of comfort that they are looking for when they are going into a market such as India.

We don’t want volatile currency and we have been 62 on dollar-rupee for every single one of the last 21 trading days, that is the sort of thing that investors like to see.