Global markets are shrouded with the fear of Britain’s possible exit from the European Union. While India may not be directly impacted, it can’t be completely immune from a global turmoil.

Speaking to Bloomberg TV India , Ambit Investment Advisory CEO Andrew Holland says a Brexit may prompt other countries to leave EU as well and that will create a global problem and throw Europe into a recession.

If Europe goes into recession, Japan will follow suit and that will slow down growth in the US. And if that happens, it will trigger a huge global risk-off trade and FII selling, which in turn will affect India as well, he said.

The global picture continues to be fairly bleak. What are the major risks on the global front? How are you viewing the current state of events?

Towards the backend of May, we were a little bit more optimistic that the Fed rate hike would probably be pushed to September and that’s what it is looking like now. And the Brexit fear was starting to subside a little bit and that’s why you have a rally in May, extending a little bit into this month as well. We are back to the normal problems in which there are no earnings growth globally.

So private equity funds around the world look very stretched without any momentum. And of course global growth is still not picking up to the level that would justify the fundamentals of the markets in being where they are. So I think that’s continuing to spook investors in terms of that we are going to see valuation crunch downwards at some point. There are negative rates now in Japan and everywhere else. European Central Bank president Mario Draghi said that they did everything they can and they now need some fiscal policies from countries to help support growth. But that’s just not happening. That’s the step we need to see for becoming bullish about global growth. I don’t think Britain leaving Europe has an immediate impact on India. An immediate impact would be that it would prompt other countries to leave EU. Britain leaving EU would have a bigger impact on the possibility of EU disintegrating. And that is a big fear for everybody.

What will the impact on Indian markets be on what Fed chair Janet Yellen does or what the Bank of Japan does with its interest rates, or if Britain decides to remain with EU?

We (India) can’t be immune from global trade. If some countries decide to leave EU, that will create a global trade problem and throw Europe into a recession. If Europe goes into recession, you can be sure that Japan will too. That would slow down growth in the US. And you go back to the debate — what else can the monetary policies do to assure the economic revival? And I think that’s the worst-case scenario. And if that happens, it will be a huge global risk-off trade because this will have an impact globally. And you haven’t even mentioned whether China will be affected by all of that. So you can’t say that we are a domestic demand-driven economy that wouldn’t stop. But as far global capital flows are concerned, you will see a lot of FII selling overseas and that would affect global markets as well as India. It’s not really economic impact. We are not a very big exporter to the world and that’s good news. But you cannot walk away from global risk.

When it comes to earnings growth prospects within India, what are your thoughts?

The back-end of Q4 earnings season was a positive surprise. We are now thinking of 10-per cent earnings growth at this moment (for FY17). If the monsoons are good, you will receive an extra gearing for the economy in the second half.

Related Topics
comment COMMENT NOW