The US Federal Reserve on Thursday decided to keep the interest rates unchanged. The Fed rate hike may come by December, which has provided the Indian market a sigh of relief. The Nifty is back at 8,000. Bloomberg TV India caught up with Nilesh Shah, MD & CEO of Envision Capital, to get an outlook of the next Fed move, RBI’s rate cut and the markets.

Now that the Fed has kept the rates unchanged, what’s your reading into this? Nifty is back at 8,000. Is it sustainable or just a momentary relief?

I think it is probably just a breath of relief in the short-term. It just gives some more breathing space to emerging markets and to India.

Of course, India seems to have been least affected. I think it would have been good if the US Fed had done the hike. We would have been done with it and then the focus would have been back to the Indian economy and whether there is a recovery which is imminent out here.

But there is an indication from Janet Yellen saying the rate hike may be either in December or October, most of the analysts say in 2016. So, a Fed rate hike is definitely down the road. Any sort of indication when we can see that?

It is almost nine months since she has been saying it is going to be a Fed hike and therefore, I am saying that it is going to be overdue more from the kind of talk that the US has been doing. So, my sense is that yes it would be good if in the next meeting they go ahead and do it. I think if you look at the fine print of the commentary, it clearly shows that she is not yet confident of a rate hike very soon and I think she is saying that the problems which the world is facing might have some kind of a spillover effect on the US economy. That is a bit of a damning statement to me.

I am not quite sure. I think she is still kind of left in a little uncertainty whether she will do the hike or not. I think that is a bit of a surprise. Markets don’t like uncertainty. I wouldn’t be surprised if we once again say there is some kind of a major knee-jerk reaction in the market.

And her commentary is also that the quantum of the hike is possibly going to be lower.

I think, by and large, most of the commentary falls in place. It is a slightly dovish commentary, if you look at it. I think it would have been more dovish if they have done it and said that we are going to take measured and calibrated steps and don’t worry, adjust yourselves to the new reality.

I think that would have been really good for the markets. The markets could have corrected if there is going to be a rate hike.

I think that would have calmed a lot of nerves. But, here, it is saying that even the date of the first hike has been postponed, even if it doesn’t happen in 2015, it just lends a fresh air of uncertainty that may not be the best way to enter into 2016.

How do we capture the moment? How does India see the opportunity where the Fed has not moved now and there is a room for Raghuram Rajan to cut rates and some are calling for an aggressive rate cut because the window of opportunity is opened . It is going to be an earning season again. Fundamentally, how are we positioned?

From a macro point of view, India should assume that there is going to be a rate hike.

That is a best case scenario for India. I think one should assume that there will be a 25 basis points hike and there will be another 25 basis points in 2016.

Same time next year, we would probably see the Fed rate at 50 basis points. One should assume that we are going to adjust to this reality. We have breathing space, we have few more weeks, we have enough quotients, maybe it’s time to build on more quotients and I don’t think Governor Rajan should go ahead and do aggressive rate cut here in India.

There are two things: First, I think commodities are again looking up in the short-term. There seems to be a pull-back rally out there. Crude is off from those lows.

Second, we definitely have a second year of a below monsoon level. I don’t know about the earnings but from a macro point of view, one needs to see how both the fuel and food inflation behaves in context of going back to 50-55 dollars, in the context of India.

I believe that even if Rajan does a 25 basis points rate cut, I don’t think it is going to help. I think quality lenders are getting debt on loans at a pretty attractive rate.

The best thing to see is what the US Fed will do as we step into 2016. May be, that might be a more opportune time. We will also have the Budget expectations building up between January and February. May be that would be a better time to do a rate cut.

What is the move for domestic investors? We are at a time that FII tends to be sitting at cash on show as the year comes to a close. What are domestic investors thinking? Is this a good opportunity?

Domestic investors are far more sanguine and far more confident in terms of outlook. Clearly, most of them are relatively under-weight on equities.

Of course, a lot of them have loaded them on fixed income. They are hoping that India is on the verge of a rate cut cycle. So, I think equities are still under-owned. They have been using these corrections to up their exposures to Indian equities and that is providing the downside quotient for the Indian markets. So, when FIIs have been withdrawing a few billion dollars, it is clearly the domestic investors who are stepping in and looking at all these as opportunities to basically up their equity exposure and we don’t see this changing.

Every domestic investor is looking at even the smallest of corrections to up their Indian equity exposure and I think this is a trend which could likely prevail for slightly more extended period of time.

Your own sense of return was that it would be too tough a question, like a close call would be for the Fed. Are returns also a bit difficult at this time?

I probably think that this is not the time to look at how the markets are going to behave in the next few months or few quarters.

This is a brilliant opportunity, a brilliant time. Markets have consolidated well from those highs of 9,000 that we saw in January right up to 7,500 in September. I think that is a fantastic correction.

We are on a cusp of a growth cycle.

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