The two-day US Federal Reserve’s Federal Open Market Committee that concludes Thursday will be closely watched by global markets to understand if quantitative easing is on track or will it be wound up as scheduled.
“I think the language [of the Fed] will be the same as it has been for several months: we’re watching the data and if anything changes, we’ll act,” Jeff Chowdhry, Head of Emerging Market Equities at London-based asset manager F&C, told CNBC-TV18’s Ekta Batra and Anuj Singhal.
“The data recently has remained softer, which indicates that interest rates will remain low for longer,” he said, adding that as growth “continues to remain difficult to come by” for major economies around the world, he believes a Fed rate hike has now been pushed to the second or third quarter of 2015 as against the first quarter, that was expected by many economists till until recently.
Chowdhry added that demand for crude has remained weak due to economic softness as well as for political reasons, which is a positive for India.
Below is the transcript of the interview on CNBC-TV18.
Ekta: Do you expect Federal Open Market Committee (FOMC) to stop bond purchases as scheduled? What will you watch out for in the FOMC statement this time?
A: The language will be same as it has been for several months. It basically is we are watching the data, we will keep an eye on the data and if anything changes we act. That is really the message which has been coming out, the data recently has been a bit softer which has indicated the fact that interest rates will remain lower for longer.
There are some people who are sort of saying that the asset program should continue but it is a feature of not just Europe but also other economies around the world. It is that growth is continuing to be difficult to come by and growth is going to be an issue which will continue to sort of overhang markets both emerging markets and developed markets over the next one to two years.
Ekta: When are you expecting the Fed to hike rates?
A: It is fair to say that the first rate hike in terms of the US has definitely been pushed out. Just several months ago they were talking about Q1 of 2015. It is now Q2 or possibly even a Q3 event of next year. The Fed are probably less worried about the dollar and more worried about the growth, given the fact that obviously the economy has come through quite a good patch as far as growth is concerned but there are early signs that growth is not as strong as everyone has been sort of talking about. Inflation is obviously very well behaved, continues to be very well behaved and with that combination one would expect that interest rates remain low for an extended period of time.
Sonia: If and when this market takes out new highs what are the leaders that will take it there?
A: As I said my top picks would be the Bank Nifty because we are still looking at it as a very lucrative space from a risk reward angle. Apart from that I really like the set up of the capital goods index. The index had seen a 3,000 points fall in the last couple of months.
It had developed a sort of pattern on the charts and from that very pattern we have seen a break out in the last three or four days and the strength in stocks like BHEL, Siemens, L&T really explains that. This is just the beginning of the next phase of the big move in the capital goods space. It is an index heavyweight space; these are big names, big market cap names which have the potential to take the index with it.
So I would like to believe that the capital goods index could potentially see a 12-15 percent move over the next 3-6 months and this is one of the better spaces n the market right now.
Apart from these two oil and gas even though has been a sort of a laggard. From a buy and hold perspective the risk reward is very good because after the rally seen early this year oil and gas also has got into a bit of a consolidation. Yes, ONGC and Reliance have underperformed but apart from these two other stocks in the sector including the OMCs have done very well.
So these three would probably be my best picks and along with these three I would also go for autos. I have always said this on your channel, good times or bad times you need to have a pretty large weightage in your portfolio in autos because they are stocks that are making new highs on weekly basis and I really don’t see this trend reversing for months to come.
Anuj: We have seen Indian stock market outperforming comparable equity markets by a huge margin. Even this year we have seen 26 percent return from Indian markets. How do you see them perform in the next 12 months and will they continue to get a larger share of global funds?
A: There are three things which are going on. The first thing is that as you said the oil prices obviously being weak, obviously gold price has also been weak as well. Both of that is very good for the current account deficit and imports. What that has allowed is basically thta inflation is starting to come down and what that also means is that interest rate cuts are much closer on the horizon. So all of that is quite good, we have obviously seen some policy measures in the last few weeks which have basically been positive and that is really helpful.
So what we have is a situation that even though the Indian market has done well this year and even though it has been one of the best performing markets in emerging markets if we have a continuation of lower commodity prices, lower interest rates the market continue to tend to go up and can continue to rerate because as we saw on the other side when you have the opposite problem which is you can derate the market very quickly, you can also have a very big rerating and in that scenario the Indian economy can continue to rerate because it is one of the few countries and few economies which are benefiting from all the trends that we have just talked about.
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