Rupee may fall 2-3%; more positive on India in EMs: StanC

He expects Fed to continue with tapering and is not expecting a change in rates.

Below is the verbatim transcript of Rob Aspin's interview with Anuj Singhal and Ekta Batra on CNBC-TV18

Anuj: Do you think the emerging markets are overreacting at this point in time or do you think it is time to be a bit cautious and this could be a bit of a correction phase?

A: I think it is a bit of a correction phase and it is not a complete surprise for us. We are underweight on emerging markets within our overall overweights on equities. We have recently highlighted last week our expectation that many of the markets because they had already run up quite significantly to date could actually be weak in the short-term. Our focus there was really on Europe in terms of overall weakness, but we also then highlighted the fact that emerging markets were at risk given the fact that you have a stronger dollar and you have tapering and on the back of that it is not a surprise that we have seen the markets fall a little bit today and we remain very comfortable with our underweight view.

Ekta: What is your expectation from the FOMC policy this week?

A: I think rates will remain unchanged and our view is that tapering will continue, the data coming out of the US for the last few weeks has been better than market expectation and that there is no real indication that the Fed will stop tapering at this point. So we are anticipating an additional USD 10 billion being tapered.

Anuj: What is your call on India? We have seen equities correct a bit, but currency has been reasonably resilient. Over the next few days do you expect equity market correction to deepen a bit and do you expect the currency to also join you?

A: This is the interesting thing. We are actually a little bit more sanguine on India within the Asia/emerging market concert for a couple of reasons. Number one is the fact that the currency has been stable since the introduction of tapering. It has been hovering around 62.5-63 to the dollar and given that we think a lot of the negative tapering is already priced in. The second fact is that we are taking the view that for both India and Indonesia we are fairly close to the end of rates hike cycle, so although their economic growth might slow the fact that we are at end of that cycle is net-net a positive for equities. So we are actually a little bit more sanguine on India. I would be looking for opportunities in healthcare and technology space. Technology is obviously quite defensive given the fact that it is a natural hedge in terms of the currency and when you look at valuation that is still quite attractive as well.

Ekta: Would you be a buyer in equities, debt as well as maybe in the currency space despite the FOMC tapering maybe in this policy and in policies going forward for India in specific?

A: I think we would be saying we are buyers. We will be looking more for opportunities within the neutral context. So what I would be highlighting is the fact that there are opportunities both across the debt markets and equity markets and one needs to be fairly selective. In terms of tapering I think a lot of that is already being priced in by the market. We have seen the currency relatively stable. It would not surprise us if the currency weakens a little bit against the US dollar given our expectation that the dollar will strengthen against both currencies, but we do not see it hitting 70 at this point in time. It will be more or less range bound or 2-3 percent weakness from current levels.