As Prime Minister Narendra Modi hardsells the India story to Fortune-500 companies and investors, the expectation over reforms and growth prospects are rising. Investors are convinced that India has the potential to overtake China, Krishna Memani, CIO of Oppenheimer Funds, told Bloomberg TV India.
What’s the outlook for the global economy and markets?
I think for the next quarter, things will probably remain quite volatile for the foreseeable future because of two things. One is China’s slowdown has to even out effectively and has to show signs that it is stabilising and not continuing to slow down in a very rapid way; and the second thing is the US Fed has to be priced out of the market.
No, we are not, unfortunately. I think basically when you look across all sectors, things really look very weak. But remember, they (China) have cut their policy rates and it just takes little time for all of that to flow to the real economy and they probably will have to take a few more steps before you see such signs of stabilisation. I think it is too early to expect that. But I think that things have started rolling on the policy front already.
You talked about Fed tightening and that being priced out. Where do you see that panning out?
If you kind of look back at the performance of the markets from the middle of last year, while we assign a lot of volatility or cause of volatility to China, it really is the Fed and the idea that the Fed is going to tighten that has got the markets in a funk. I think, at some point of time, the Fed is going to tighten, but I don’t think that is today, that is not in 2015 and in all likelihood in my mind, probably, not even 2016 for now.
What is the basis of that call?
Effectively, you know, we are still dealing with deflationary pressures all over the world. The other reason to have that view is effectively that the Fed has globalised its thinking. Let me elaborate. Fed had been singularly focused on the US economy for its entire history. For the first time, it is kind of acknowledging that what happens in the world is going to be relevant to what happens in the US.
What prompted that?
Just the volatility. Growth slowdown in China, volatility coming from China and emerging markets, and to some extent volatility coming from the commodity markets, which are inter-related.
What is the outlook for India?
India is actually the exception in the emerging market rather than a trend.
Is that by effort or is that by default?
I think part of it is by effort and part of it is by default.
What is the effort?
Electing a new government with a large majority and having a credible central bank governor (Raghuram Rajan). Bad things are happening to BRIC countries and emerging markets and commodities as well. So, if China is slowing down and Brazil is in a worse shape than China, and Russia having all sorts of issues, then India is the only country that the world is looking to provide the growth engine that China was.