Amid a choppy global market scenario, investors are thronging the UBS India Conference in Mumbai. Bloomberg TV India caught up with Geoffrey Dennis, Head of Global Emerging Market Strategy at UBS Investment Bank, to discuss the Indian growth story.
What’s the mood like at the UBS India Conference?
We feel the mood is relatively positive. This is reflected in the number of people and investors who are attending this year’s seminar. This is still the best growth story in emerging markets — certainly in terms of economic growth, now that China is slowing very rapidly. There have always been some certainties about corporate earnings growth in India, which is key to the performance of equity markets. But generally, this is a strong growth story and I think it is bringing people in because of that. Also India has had a slightly tough year, probably a tougher year than we anticipated, especially in dollar adjusted terms as you factor in the currency as well. Maybe investors are looking for some growth opportunities going into 2016.
I think we are very well prepared for the Fed rate hike in December. I think what will really matter for the emerging markets is what Fed says about the future rate hikes. Now our forecast at UBS is that if Fed raises rates in December, there will be four more times in 2016. I think the risk to that call is perhaps that they don’t raise rates as much as that. They will be conscious that the growth story around the world is softer than what many would like to see even though the argument for Fed to raise rates is strong because of the strong labour market and some signs of wage inflation.
I think they are going to give a relatively dovish prospect going forward of what’s going to happen on the rate front.
The year 2013 was very turbulent for emerging markets due to the Taper Tantrum. How different is the situation now?
I think there are big differences between the 2013 Taper Tantrums and now, certainly with respect to India, which had a big current account deficit and now has no deficit at all.
The difference is that it was a surprise when Fed chairman Ben Bernanke hinted at the end of QE or tapering of QE. We had a big bond market sell-off but we are not expecting that to happen this time around. You have already seen in the last several months there is quite a lot of weakness in the currency anyway.
In some sense perhaps the risk there is not as great. We are not overtly bullish about the dollar over all. But certain currencies that have already fallen this year, including the Indian rupee, may well fall further next year — that is a risk. We feel the Fed hiking campaign which is in line with the market expectations is going to give you a little bit of currency weakness. But it is nothing like the problem we had in the middle of 2013.