Growth, reforms make India shiny; China no threat: Rabobank

Growth acceleration and policy reforms are making the India story attractive, Michael Every, Head of Markets Research, Asia-Pacific at Rabobank told CNBC-TV18. However, he says interest rates and inflation needs to fall. He does not consider the Chinese stock market a direct threat to the Indian market, and said the Chinese market was being propped up by the authorities.Chinese equities have pared losses after the stunning plunge on July 8, but most experts feel the partial recovery has been largely due to government directives, and not based on fundamentals. Also, he think that India will benefit from slowdown in China’s economy and tumble in global commodity prices. He expects the US Federal Reserve to hike interest rates either in September or December this year.“We are still looking at the monthly payrolls data, we are looking at inflation data, we are looking at any number of indicators to work out what they mean in terms of ‘some’,” Every said.  Below is the transcript of Michael Every’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.Ekta: How did you read the Federal Open Market Committee (FOMC) policy outcome and should we brace ourselves for a rate hike come September?A: That is still up in the air. There were not really too many surprises in that statement. But what we did get was some new language that to play around with. The Fed introduce the term ‘some’, in terms of the fact that they need to see some further improvement in data before they feel ready to pull that trigger. All of us are scratching our heads trying to work out exactly what ‘some’ means and I think we will continue to do so as we head towards September and then into December if they have not pulled the trigger then. Obviously, the starting point today will be Q2 gross domestic product. But that is rather backwards looking. So, we are still looking at the monthly payrolls data, we are looking at inflation data, we are looking at any number of indicators and trying to work out exactly what they mean in terms of ‘some’.Anuj: But, do you think this takes away a bit of a near-term uncertainty at least in terms of the risk on sentiment that drives some of the emerging markets and here on, would you expect emerging markets to reclaim some of the lost ground?A: To be honest, that will be a rather dangerous view to take, because effectively we know a rate hike is coming from the Fed in either September or December. I mean we can narrow it down to those two choices unless something very dramatically negative happens in the global economy, in which case that is also going to affect emerging markets. So, given that it is just a question of how many months this happens, the far bigger question is where do we go from there. What does 2016 hold? What does 2017 hold? Rather than trying to nimbly pick up pennies in front of a steam roller which is effectively what it would be trying to ignore the looming Fed rate hike coming in the second half of this year.Ekta: What is your cal specifically on India? How are you placed and what might the key cues that you are looking out for in terms of maybe incremental gains for, or triggers for the Indian market?A: I am placed here in Hong Kong. But in terms of the Indian market, I think one should always look at fundamentals and that is how I look at everything. There are many different ways to trade markets and play markets. I just like to look at what the fundamental story is telling me. In India’s case, I still think it is a good news story. Demographically it is wonderful, growth is picking up, we have got a government which is slowly pushing ahead with the right kind of reforms. All we need to see is inflation coming down, interest rates coming down a little bit and I think that things can continue to look even more positive than they are now. Having said that, the global backdrop remains very challenging. But within what I see as very problematic backdrop, India does stand out as having a lot of positive domestic fundamentals in its favour.Anuj: What about China as a risk factor for emerging markets and a call on China itself? You have seen quite a bit of volatility, you have seen a lot of recovery in H-shares, so at least some recovery in H-shares, but the Shanghai market still remains quite volatile. What is your sense there?A: In terms of a call on the Shanghai market, really, you have to ask the government how much work they are going to do, because effectively, they are artificially propping this market up now. It is not a market in the same way the India markets are, it is not freely traded. If it were freely traded, you would be heading straight back to 2,500 again, because it has been a bubble, it is still a bubble in many areas and it is a bubble that is still in need of bursting or further bursting and correction. But given that the government in China are basically bailing it out every single time it moves lower than a certain threshold, it is very hard to tell exactly where the market is going to go. It is not something that we can do on any fundamentals basis. What does it mean for India and other emerging markets? Well, on one hand, it is negative in terms of sentiment. But actually China is being ring-fenced in terms of capital flows from other emerging markets. So, I do not see that being a threat directly. What is much more concerning is what it means for the real economy. Even there we are getting mixed signals. I do not know exactly how bad it will be for China, above and beyond the bloated confidence. But, ironically, if we are seeing China slowdown and we do see global commodity prices continue to tumble as we are at the moment, India actually stands to benefit from that slightly.