Seeing less contraction in Indian pvt investments now: UBS

A: Yes, we were among them, we also didn’t think June was very likely, so if we take a step back the situation the Fed is in and that basically explains this unsurprising outcome of the Fed minutes.

We did have an entrenched economic recovery and we see it in strong labour market data, we also see it in housing market but during the last couple of months we got disturbances and it isn’t quite clear whether these disturbances stem from what the Fed calls transitory strong dollar and oil energy market. Unfortunately, we are also not going to be in a position until the next Federal Open Market Committee (FOMC) meeting in June to really get enough data to figure out which one it is. So it makes sense to not hike in June therefore and on the other hand, Pundits dismiss a bit or don’t discuss as much is we also need to factor in that actually and partially by Fed design, we already have significant US dollar strengthening which already acts as tightening of sorts to the economy so even if you don’t raise in June, you are already in a bit of a tightening mode that is caused by the strong US dollar.Anuj: The other issue which was being debated overnight was what is happening in Greece and there is fresh call from Greece that it will default in June if it doesn’t get aid from lenders. Is that still a risk for market or has the market baked that in?

A: That is fairly high, just basically missing one payment would already get us into that situation however we need to distinguish that is not the same automatically with what the people call Grex, it is also a Greek exit from the euro.

These are not the same events for the latter for actual Grexit we have much lower possibility maybe 20-30 percent. Now, the question is if in some worst case scenario is baked in, I don’t think it needs to be baked in because they still have a good month yet until the final decision so to speak is due from the EU authorities or The Economic and Monetary Union (EMU) authorities, so that still gives them a bit of time to find a solution and in terms of where the markets price it in, we have just seen yesterday that Portugal issues notes on negative yield, so I would also say therefore if markets were really worried about any contagion in the EMU space, then probably Portugal would not be in a position to issue a negative yield.Sonia: Do you think risk appetite in global equities will continue to be strong (1) because the rate hike will be postponed from June to September and (2) because not too many people are worried about Greece?

A: I would agree on both counts. However, coming to the US, we will see a phase out of weather effects for sure. We are already starting to see it in the data in my view and as a matter of fact a Fed hike is also a strong signal of confidence by the Fed in any case. I do not think it would be taken negatively in terms of growth that shows that the Fed thinks that the US is strong enough to extend rate and it’s a positive signal and as a matter of fact in the EU of course Greece to some degree remains at a risk but we think that in the meantime we see a fairly broad base, no longer just Germany or German export, we see a fairly broad base recovery also in southern countries that have come through labour market reforms. I think of Spain, Portugal, they are growing faster than Germany. So yes, it is still in a moderate way maybe but still time to be risk on here.

Sonia: Any thoughts on India?

A: Yes also since I was on the programme the last time, we really went through a lot of data. One thing I wanted to dismiss here was many of the comments that we saw in reforms, about talk and about long-term and showing us it is also about long-term, but looking at the data just to give one example, for India the critical part is to move investment around and if you look at private investment, people telling us they are not to see the growth on the ground. It is true. You are not seeing growth but you are seeing less contraction. For equity market that’s good enough; equity market specifically do not weigh until you see the growth. Less contraction is good enough and that is a very creative trajectory and no coincidence. If we look at the trajectory of the approvals, very-very strong and so they correlate and also maybe a second thought I have on the earning season, one thing that encourages me in particular is the biggest sector of the financial and first of all banks of course were starting to see more desperation and before and the recent earning seasons you saw a deteriorate in asset quality across the board on bearing levels and now there is more in both in private and in public sector undertaking (PSU) banks, some are still deteriorating but others are no longer deteriorating and tomorrow we are going to get big bellwether on the PSU side as well and let’s see what they tell us but you will not have black and white change from season to the other that all of a sudden everybody reports a better asset quality.