Negative surprises from FOMC meet, RBI likely: BP Singh

The market has already factored in most positives like FOMC decision is going to be quite favourable and the expectation that RBI will continue to maintain a soft stance, says BP Singh, Executive Director and CIO - Equity, Pramerica Mutual Fund. However, he cautions that negative surprises from either of the two are likely given the global and local macro data.

Also Read: India's business confidence at four-year low: Survey

Meawhile, Singh does not believe the pain is over for the Indian currency yet. "The rupee appreciated on two counts, globally the dollar depreciated in the last few days and RBI allowing swap facility for the FCNR deposits," he told CNBC-TV18 in an interview.

These are short-term borrowing measures, the swap facility is almost equivalent to an NRI bond. Though these kinds of measures help, they are not long-term solutions, he added. According to him, the only long-term solution is ensuring that investment in the economy picks up.

Those looking to enter the market should wait for better prices, which is likely if there is some negative news from FOMC meeting and RBI's credit policy on September 20.

Below is the verbatim transcript of BP Singh's interview on CNBC-TV18

Q: What is your sense, have the markets got the best, made the best of the international rally or do you think there is more to come?

A: I think the market is now set to wait for the two events which are there in the later part of the week that is the Federal Open Market Committee (FOMC) meeting as well as the RBI meet which is going to take place on Friday. I think the market has already discounted most of the positives in the sense that it has already factored in that probably the FOMC decision is going to be quite favourable. At the same time there was a good amount of expectation that the central bank in India probably will continue to maintain a soft stance.

Now both the scenarios are discounted in the market. Negative surprises on either of the two are probably going to spook the market in the current scenario. The probability of that seems to be slightly higher considering the kind of data one is seeing both in the global market as well as in the domestic market.

Q: The one positive in the last couple of weeks has been the way the rupee has recovered so since the appointment of the new governor the rupee is up about close to 7-8 percent. Do you think we have seen the worst in terms of the currency?

A: We don't think so. In our opinion the appreciation in the currency is on account of two factors, one globally the dollar has actually depreciated in the last few days so it is a coincidence that it got clubbed with the event where the RBI governor has come. Secondly, certain steps taken by the RBI in the sense they have allowed swap facility for the FCNR deposits. Now these are some of the short-term borrowing measures, the swap facility is almost equivalent to an NRI bond. And as it is quite clear that now on account of that decent amount of short-term money has started flowing into the country, these kind of measures help but these kind of measures cannot be a long-term solution.

The long-term solution is to work to ensure that the major cause which is the reason why we are seeing these kind of depreciation are taken care of. We do not believe that we have done anything to alter that. What we need to do is to ensure that the investments in this economy once again picks up. And even today when you take the data there is nothing to point out that the investments are going to pickup because of ABC decision taken in the current economy.

Q: Are you a buyer at these levels or you think you are going to get much better levels as a mutual fund investment chief?

A: Definitely with little bit of uncertainty at this point in time with the FOMC decision and the RBI’s decision on Friday, we are little bit cautious at this point in time and we are waiting for better prices because we think right now the market has actually discounted most of the positives in the short-term. Though we continue to remain positive as far the long-term is concerned but short-term we think there will be minor set backs in the market and particularly with both these decisions. The recent appreciation in the currency is definitely giving enough opportunities to realign the portfolio but since we believe that the currency will once again start depreciating, so we are holding our buying programme for the time being.