'If there is a risk-off trade, India can’t be insulated’

International events shake up the risk appetite and India is a part of the emerging market basket that is risky. A mid-policy interest rate correction can change sentiment, says UR Bhat, MD, Dalton Capital Advisors. Excerpts from an interview:

After last week’s turmoil, how much pain do you feel is coming up ahead?

Certainly, there is going to be more volatility but I don't think it will fall too much unless China gives up. China is a controlled economy; they will do whatever to make sure foreigners don't lose confidence in the markets. There is a huge victory celebration later this week, so they will make sure that markets are stable at least till then.

What is the outlook for India in this context?

I don’t think people are terribly bullish on India, largely because of international reasons, not so much because of India. Also, the monsoon has not shaped up well. Then on the legislative front, there’s not been much progress. Even the non-legislative action by the government, leaves a bit to be desired. International events will shake up the risk appetite. India is a part of the emerging market basket which is risky. If there is a risk-off trade, India can’t be insulated.

Do you think it is becoming harder to find value in such a market given the circumstances?

It is going to be hard for traders, but as investors you can pick up the right stocks and the right sectors. One has to be safe. The safe ones are the ones who will probably save you the blushes when the markets correct. That is where one should be invested and wait for two- three years.

The way the news from Jackson Hole is panning out, it still seems uncertain how the Fed is going to move. So in the near term, are we going to see any weakness?

It all depends on international events. Some domestic events can also change the outlook. For example, a mid-policy interest rate correction downwards by the RBI, which is not impossible. Overseas events matter because India eventually has to respond to events elsewhere. We can’t keep waiting for inflation to fall in the negative territory for us to do whatever we want to do. So I think there can be some sort of an action by India and that can probably change sentiment.

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